Japanese Household Spending Falls for Second Month (Update5)
[most of the people in the article seem to think this is only a blip and that sales will pick up - mish]
July 30 (Bloomberg) -- Japanese households cut spending for a second month in June as wages slid and the economy lost the most jobs in three decades, underscoring concern that consumer demand may be faltering.
Spending by households headed by a salaried worker dropped a seasonally adjusted 3.5 percent from May, the statistics bureau said in Tokyo. That compares with the median 1 percent decline forecast in a Bloomberg News survey of 21 economists.
Wages have fallen for all but three of the past 36 months, curbing the spending that makes up more than half the world's second-largest economy. Japan is counting on consumers to help fuel a 3.5 percent economic expansion in the year ending March 31, the fastest in eight years.
``Going forward, consumer spending may not be as strong as we saw in the last few months,'' said Peter Morgan, chief economist at HSBC Securities Japan Ltd.
Japan's unemployment rate was unchanged at 4.6 percent in June, the statistics bureau said today in Tokyo. The economy shed 380,000 jobs, the most since July 1974, and the labor force shrank by 360,000 people.
The yen was at 111.91 to the dollar at 1:02 p.m. in Tokyo from 111.99 late yesterday in New York.
An increase in the number of jobs available for every 100 applicants suggests the labor market will improve, Morgan said. There were 82 jobs for every 100 applicants in June, the highest since April 1993, according to the Ministry of Health, Labor and Welfare.
Retail Sales
``We had a very sharp jump in new job offers and the new job offers ratio,'' Morgan said. ``I would be very surprised if employment doesn't bounce back.''
Retail sales fell for a third month in June, and demand for services unexpectedly shrank for the first time in three months in May, according to government reports this month. Industrial production fell 1.3 percent in June from the highest level in more than three years, the government said yesterday.
``I can't really see consumer spending picking up,'' Keiji Aritomi, chairman of Yamato Transport Co., Japan's second-biggest parcel delivery company, said in an interview this month. ``Japan's economic recovery, from looking at the retail sector, is not yet in full bloom.''
Household spending rose 2.1 percent in the three months through June compared with the previous quarter, today's report said. From a year earlier, spending fell 1.3 percent in June, the first drop in three months.
Bonuses
Record summer bonuses may fuel spending in coming months, said Mamoru Yamazaki, chief economist at Barclays Capital Japan Ltd. Summer bonuses at large companies rose 2.9 percent from last year to 829,030 yen ($7,320), according to the Japan Business Federation.
``In the second half I'm optimistic,'' Yamazaki said. ``The income situation should improve.''
Spending by consumers accounted for a third of the 6.1 percent annual pace of growth in the first three months of 2004 as Japan's two-year expansion created new jobs.
Many of those are temporary and part-time positions that don't bring the same job security and benefits as full-time posts. The number of people working up to 30 hours a week has risen every year for the past four years, whereas those working more than 35 hours a week has dropped every year during the same period, according to government data.
``Added future spending must be supported by increased nominal wages and employment,'' said Uwe Parpart, senior market strategist in Hong Kong at Bank of America. ``That's not happening. Much of the added employment is temporary and part-time help.''
Savings
Takashimaya Co. and other department stores are employing more short-term contact workers in place of costlier full-time staff as falling demand for clothing and food forces cost cuts.
Consumers are dipping into savings to support spending. In May, money in postal savings accounts dropped to the lowest since July 1996.
Retail sales dropped unexpectedly for a third month in June, led by food, beverages and automobiles, a government report said this week. Sales fell 0.6 percent, seasonally adjusted, from May.
Demand for services unexpectedly shrank 1 percent in May, dropping for the first time in three months, led by wholesale and retail trade as wet weather kept shoppers at home.
A six-year slide in consumer prices is hurting spending as shoppers delay making new purchases on expectations goods will become even cheaper.
Prices
Prices are ``still falling because company productivity is rising and labor costs are being kept at low levels,'' Bank of Japan Governor Toshihiko Fukui said at a news conference this month.
Core consumer prices in Tokyo fell 0.1 percent in July from a year earlier, the statistics bureau said today. Nationwide core consumer prices fell in June, also by 0.1 percent. Core prices don't include fresh food.
Japanese department store sales dropped 5.7 percent in June from the year-earlier period, their biggest decline in five years, while supermarket sales dropped 4.1 percent.
Unusually hot weather is boosting demand for cold beverages and air conditioners. Temperatures in most of the country may be average or higher than average in the three months starting August, the Japan Meteorological Agency said.
Overtime Hours
Signs of improvement in spending are beginning to show for Honda Motor Co., Japan's third-largest automaker, which said this week that domestic sales rose 0.7 percent to 154,000 units in the April-to-June quarter. The gain was the first in eight quarters.
``We are seeing signs of the domestic economy improving,'' said Koichi Amemiya, executive vice-president of Honda.
Manufacturers may hire more workers as they raise output. Industrial production will probably grow 1.6 percent in July and 1 percent in August, the Ministry of Economy, Trade and Industry said in Tokyo.
``With overtime hours increasing companies are going to find that they will need
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