Japan's Household Spending Falls; Economy Sheds Jobs
By: Administrative Account | Source: Bloomberg
April 26, 2005 6:12AM EST

April 26 (Bloomberg) -- Japan's household spending, buffeted by reduced overtime hours and stagnant wages, fell for a second month in March and the economy lost jobs, suggesting consumers won't help sustain a recovery from last year's recession. Spending by households headed by a salaried worker slid 1.1 percent from February, seasonally adjusted, to average 353,639 yen ($3,342), the statistics bureau said today in Tokyo. The economy shed 270,000 jobs and the workforce shrank by 430,000, pushing the jobless rate down to 4.5 percent from 4.7 percent. Exporters are limiting wage increases as production slows, damping the consumer spending that makes up half the economy and cutting sales at retailers including Takashimaya Co. Rising metals and oil costs may further squeeze profits, curbing growth as Japan emerges from its fourth recession since 1991, said Hiromichi Shirakawa, chief economist at UBS Securities Japan Ltd. ``If companies are under pressure in terms of profitability they will likely decrease employment and wages,'' said Shirakawa, a former Bank of Japan official. ``It's of course quite difficult for us to anticipate robust and strong growth in Japan.'' Consumer prices fell in March, another report showed today, marking a seventh year of deflation in Japan and making it less likely the central bank will raise key interest rates from almost zero. Core prices, which exclude fresh food, fell 0.3 percent from a year earlier, the government's statistics bureau said. Earnings Outlook The benchmark 1.3 percent bond due in March 2015 rose, pushing its yield down 1 basis point to 1.25 percent at the close of trading at 6:05 p.m. in Tokyo, matching the lowest since March 1, 2004. A basis point is 0.01 percentage point. Japan slipped into recession last year as export growth slowed and consumer spending stalled. The economy recovered in the fourth quarter, growing at a 0.5 percent annual pace. Consumer spending fell in the second half of 2004. ``At this time sales have been particularly difficult,'' Takashimaya's president, Koji Suzuki, said in an interview. ``Women's, men's and children's clothing simply isn't selling.'' Osaka-based Takashimaya, Japan's largest department store, said sales fell 2.3 percent to 275.7 billion yen in the three months ended Feb. 28. Rising prices of oil, steel and other raw materials threaten to squeeze profits at manufacturers including Kao Corp. that are struggling to pass on higher costs to customers amid deflation. Producer prices rose for a 13th month in March. Industrial Production ``Prices of our major products dropped 3 percent last year, and we anticipate an additional decline of 1 percent to 2 percent this year,'' Motoki Ozaki, president of Kao, Japan's largest household goods maker, said in an interview on April 21. ``We have a big concern about raw material prices, including crude oil.'' Almost 60 percent of company presidents or chairmen in Japan said increases in the cost of raw materials are damaging earnings prospects, according to a Nihon Keizai Shimbun Inc. survey published on April 23. The Bank of Japan's Tankan survey of business sentiment showed that large manufacturers expect pretax profit will grow 1.1 percent in the business year started April 1, compared with 25 percent growth last year, reflecting concern that higher commodity prices will increase costs and hurt consumer spending. Industrial production dropped 2.3 percent in February, seasonally adjusted, and has declined for four of the past six months. Overtime hours at manufacturers have also fallen for four of six months. Trade Surplus Japan's trade surplus narrowed in March as imports rose faster than exports, the government said on April 21. Exports, which accounted for a third of growth in 2004, are slowing as near- record oil prices and rising U.S. interest rates curb demand for products including DVD recorders made by Victor Co. of Japan. Japan will grow 0.8 percent this year, compared with a 3.6 percent expansion in the U.S., the International Monetary Fund said this month. It lowered its Japan outlook from a September forecast for 2.3 percent growth because of slowing exports. Spending on food fell 2.2 percent in March, and on education and recreation it fell 4.1 percent, today's report showed. For the first quarter, spending rose from the previous three months, when typhoons and earthquakes kept shoppers at home. Spending in the quarter to March 31 rose 3.2 percent, the first gain in three quarters and the biggest since 1997. Wages have risen in three of four months through February after sliding on an annual basis for nine years. The increases may not be enough yet to stoke consumer spending, said Lim Su Sian, an economist at IDEAGlobal in Singapore. Ageing Population ``I don't see the personal consumption side improving dramatically for a while,'' said Lim. ``I'm hoping for sustainable wage improvements by the end of this year.'' In the first quarter, the number of people in the workforce fell by 110,000 people, from a year earlier, while the economy added 120,000 jobs. The workforce is shrinking as the population ages. Japan's population will begin to contact next year, while the number of pensioners will rise 40 percent to 34 million by 2018, according to government estimates.

To contact the reporter on this story: Lindsay Whipp in Tokyo at lwhipp1@bloomberg.net Last Updated: April 26, 2005 05:48 EDT