Japan's real household spending fell at a faster pace than expected in April for a second straight decline on the year as people remained frugal by switching to discount mobile phone plans amid high costs for daily necessities, but spending on traveling and dining out was strong on pent-up demand, data released Tuesday by the Ministry of Internal Affairs and Communications showed.

The Econoday Consensus Divergence Index stood at minus 34, below zero, which indicates the Japanese economy is performing worse than expected after outperforming earlier. Excluding the impact of inflation, the index was at minus 43.

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 sliding. Nominal wages are expected to grow at a fast rate this year amid labor shortages in some sectors.

Real average spending by households with two or more people slumped 4.4 percent on the year in April after falling 1.9 percent in March and rebounding 1.6 percent in February on a 0.3 percent dip in January. It was weaker the median economist forecast of a 2.3 percent drop (forecasts ranged from a 2.8 percent drop to a 0.5 percent gain). The decrease was the sixth in 12 months.

The real spending adjusted index (2020 = 100) stood at 99.0 in April, down sharply from 100.3 in March, 101.1 in February and 103.6 in January (the highest since 104.9 in April 2021).

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 durable goods. Households continued spending less on groceries (fish) and prepared food (bento boxes), compared to the earlier phase of the pandemic, when households had cooked more at home and bought takeout food to avoid contact.

Households also spent less on high school supplementary education in April, pushing down overall expenditures from a year earlier as seen in March. This category has been weak since November 2022. The decline is due to combined factors, such as the falling population aged under 18 years old, rising consumer prices and the trend among schools to finish entrance examinations by the end of December for the school year starting in April.

Backed by the government's tourism subsidy program, households continued spending more on eating out, domestic and overseas packaged tours, compared to a year earlier when Covid restrictions were partially eased but not lifted widely as in March and April this year. 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.

On the month, real average household spending fell a seasonally adjusted 1.3 percent in April after dipping 0.8 percent in March, slumping 2.4 percent in February and rising 2.7 percent in January for an eighth decrease in 12 months. It was much weaker than the consensus forecast of a 0.2 percent rise (forecasts ranged from a 0.7 percent fall to a 3.8 percent gain).

The average real income of households with salaried workers posted the seventh straight year-on-year drop, down 1.4 percent in April (up 2.6 percent in nominal terms), although the figures were better than in March, when the average income fell a real 4.5 percent and a nominal 0.9 percent. The main bread-earner's real income in the average household marked the fourth straight year-over-year drop while the average spouse real income posted the 15th straight rise.

Japan's real household spending likely posted a second straight drop on the year in April, down 2.3 percent, after a 1.9 percent dip in March. There is a widespread move to switch to discount mobile phone plans amid high costs for food and other daily necessities while spending on traveling and dining out appears to be solid due to pent-up demand. On the month, expenditures are seen up a slight 0.2 percent, which would be their first rise in three months following a 0.8 percent decline.

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.

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.