| Consensus | Consensus Range | Actual | Previous | |
|---|---|---|---|---|
| Month over Month | 1.6% | 0.3% to 2.9% | -0.8% | -2.4% |
| Year over Year | 0.3% | -0.8% to 5.2% | -1.9% | 1.6% |
Highlights
Japan's real household spending came in much weaker than expected in March, posting drops both on the year and month, as people continued switching to discount mobile phone plans amid elevated food costs while spending more on traveling and eating out, data released Tuesday by the Ministry of Internal Affairs and Communications showed.
The Econoday Consensus Divergence Index stood at plus 4, slightly above zero, which indicates the Japanese economy is performing only slightly better than expected or largely as forecast. Excluding the impact of inflation, the index was at zero.
Both the government and the Bank of Japan have been providing stimulus to help the economy recover fully from the pandemic-caused slump. The output gap has remained negative in the past few years while real wages have been declining.
Real average spending by households with two or more people plunged 1.9 percent on the year in March, giving up all of the 1.6 percent rebound in February and following a 0.3 percent dip in January. It was much weaker the median economist forecast of a 0.3 percent rise (forecasts ranged from a 0.8 percent drop to a 5.2 percent gain). The decrease was the sixth in 12 months.
The decline was led by the widespread move among many mobile phone users to switch to discount plans as their purchasing power has been eroded by surging costs for food and beverages and durable goods. Households continued spending less on groceries (fish), compared to the earlier phase of the pandemic, when households had cooked more at home and bought takeout food to avoid contact.
Backed by the government's tourism subsidy program, households continued spending more on eating out, hotels and domestic travel packages, compared to a year earlier, when the government urged restaurants and bars to cut business hours and people to stay home during the Omicron storm. In 2022, the government resumed restrictions on social and economic activities in 35 of the 47 prefectures in late January and extended strict Covid rules for Tokyo and 17 other jurisdictions until March 21. This means the base effect was for about two-thirds of a month for March, compared to a full-month booster effect for February.
On the month, real average household spending fell a seasonally adjusted 0.8 percent in March after slumping 2.4 percent in February and rising 2.7 percent in January for a seventh decrease in 12 months. It was much weaker than the consensus forecast of a 1.6 percent rebound (forecasts ranged from 0.3 percent to 2.9 percent gains).
Real household expenditures dipped 0.3 percent on quarter in the January-March quarter after edging up 0.2 percent (revised down from a 0.4 percent rise) in October-December and falling a revised 1.0 percent in July-September, indicating that private consumption provided little contribution to an expected slow economic growth in the first quarter in preliminary GDP data due May 17.
Japan's economy is forecast by economists to post a modest 0.2 percent rebound on quarter, or an annualized 0.6 percent rise, in January-March as exports and business investment lost some steam amid slowing global growth while widely eased Covid public health rules mitigated the impact of elevated costs for daily necessities on consumer spending. It would follow zero growth on quarter, or an annualized 0.1 percent increase, in the final quarter of 2022, when a large drop in private-sector inventories pushed down domestic demand.
The average real income of households with salaried workers posted the sixth straight year-over-year drop, down 4.5 percent in March (down 0.9 percent in nominal terms), after falling 0.8 percent in February (up a nominal 3.1 percent). The main bread-earner's real income in the average household marked the third straight year-over-year drop while the average spouse real income posted the 14th straight rise.
The Econoday Consensus Divergence Index stood at plus 4, slightly above zero, which indicates the Japanese economy is performing only slightly better than expected or largely as forecast. Excluding the impact of inflation, the index was at zero.
Both the government and the Bank of Japan have been providing stimulus to help the economy recover fully from the pandemic-caused slump. The output gap has remained negative in the past few years while real wages have been declining.
Real average spending by households with two or more people plunged 1.9 percent on the year in March, giving up all of the 1.6 percent rebound in February and following a 0.3 percent dip in January. It was much weaker the median economist forecast of a 0.3 percent rise (forecasts ranged from a 0.8 percent drop to a 5.2 percent gain). The decrease was the sixth in 12 months.
The decline was led by the widespread move among many mobile phone users to switch to discount plans as their purchasing power has been eroded by surging costs for food and beverages and durable goods. Households continued spending less on groceries (fish), compared to the earlier phase of the pandemic, when households had cooked more at home and bought takeout food to avoid contact.
Backed by the government's tourism subsidy program, households continued spending more on eating out, hotels and domestic travel packages, compared to a year earlier, when the government urged restaurants and bars to cut business hours and people to stay home during the Omicron storm. In 2022, the government resumed restrictions on social and economic activities in 35 of the 47 prefectures in late January and extended strict Covid rules for Tokyo and 17 other jurisdictions until March 21. This means the base effect was for about two-thirds of a month for March, compared to a full-month booster effect for February.
On the month, real average household spending fell a seasonally adjusted 0.8 percent in March after slumping 2.4 percent in February and rising 2.7 percent in January for a seventh decrease in 12 months. It was much weaker than the consensus forecast of a 1.6 percent rebound (forecasts ranged from 0.3 percent to 2.9 percent gains).
Real household expenditures dipped 0.3 percent on quarter in the January-March quarter after edging up 0.2 percent (revised down from a 0.4 percent rise) in October-December and falling a revised 1.0 percent in July-September, indicating that private consumption provided little contribution to an expected slow economic growth in the first quarter in preliminary GDP data due May 17.
Japan's economy is forecast by economists to post a modest 0.2 percent rebound on quarter, or an annualized 0.6 percent rise, in January-March as exports and business investment lost some steam amid slowing global growth while widely eased Covid public health rules mitigated the impact of elevated costs for daily necessities on consumer spending. It would follow zero growth on quarter, or an annualized 0.1 percent increase, in the final quarter of 2022, when a large drop in private-sector inventories pushed down domestic demand.
The average real income of households with salaried workers posted the sixth straight year-over-year drop, down 4.5 percent in March (down 0.9 percent in nominal terms), after falling 0.8 percent in February (up a nominal 3.1 percent). The main bread-earner's real income in the average household marked the third straight year-over-year drop while the average spouse real income posted the 14th straight rise.
Market Consensus Before Announcement
Japan's real household spending is expected to post a second straight year-over-year rise in March, up 0.3 percent, on pent-up demand for traveling and eating out, but the pace of increase is seen decelerating from a solid 1.6 percent gain as costs for food and durable goods remain elevated and people continued switching to discount mobile phone plans. Expenditures are expected to mark a 1.6 percent rebound on the month after a 2.4-percent slump in February.
Definition
Household Spending is an important gauge of personal consumption, which accounts for roughly 55 percent of Japan's gross domestic product. It is part of the monthly Family Income and Spending Report.
Description
The report looks at spending of households and gives a picture of consumer spending. Increases in household spending are favorable for the Japanese economy because high consumer spending generally leads to higher levels of economic growth. Higher spending is also a sign of consumer optimism, as households confident in their future outlook will spend more. The preferred number is the change from the previous year. The data are part of the family income and expenditure survey which is released at the same time as the employment and unemployment data.
