Japan's real household spending posted its eighth straight drop on the year in October, down a smaller-than-expected 2.5 percent, after a 2.8 percent dip in September, as high costs for daily necessities promoted many to remain frugal and the lingering heat wave damped demand for autumn clothing and heaters, data released Friday by the Ministry of Internal Affairs and Communications showed.

On the month, expenditures dipped just 0.1 percent, firmer than expected, after edging up 0.3 percent in September and rebounding 3.9 percent in August. Pent-up demand for eating out and traveling had already shown slower momentum in the previous month.

The widespread move among consumers to switch to discount mobile phone plans remains intact while the pandemic-era necessity to simplify weddings and funerals continued to push down the costs for ceremonies, which was the largest contributor to the overall year-over-year drop in spending.

Econoday's Relative Performance Index stood at zero, which indicates the Japanese economy is performing as largely expected. Excluding the impact of inflation, the RPI was at plus 30.

Both the government and the Bank of Japan have been providing stimulus to help the economy recover from the pandemic-caused slump. Nominal wages are expected to grow at a fast pace in the current fiscal year amid labor shortages but real wages remain below year-earlier levels.

The core measure of real average household spending (excluding housing, motor vehicles and remittance), a key indicator used in GDP calculation, fell 3.6 percent on the year in October, compared to the 2.5 percent drop in overall spending, after falling 3.0 percent in September (down 2.8 percent overall).

The average real income of households with salaried workers posted the 13th straight year-over-year drop, down 5.2 percent in October (down 1.5 in nominal terms) after falling 5.8 percent in September (down a nominal 2.4 percent). The main bread-earner's real income in the average household marked the 10th straight year-over-year drop while the average spouse real income posted the sixth straight drop after recording the first decline in 16 months in May.

Real Wage Drop Continues; Nominal Base Wages Post Solid Gain

The pickup in nominal wages in Japan continued for nearly two years while real wages fell on the year for the 19th straight month, data released Friday by the Ministry of Health, Labour and Welfare showed.

Total monthly average cash earnings per regular employee in Japan posted their 22nd straight year-on-year rise, up a preliminary 1.5 percent in October, after rising 0.6 percent (revised down from 1.2 percent) in September, 0.8 percent in August, 1.1 percent in July, 2.3 percent in June and 2.9 percent in May. The recent slower pace was due to a decline in bonuses and other special pay for the second straight month in September as well as no growth in overtime pay in July.

Base wages rose a solid 1.4 percent on year, marking the 24th straight gain, after rising a revised 1.0 percent in September. The pace of increase has accelerated moderately in recent months from 0.5 percent in March as many firms are raising wages to secure workers. The key indicator for overall wages has been on a recovery trend.

In real terms, average wages fell a preliminary 2.3 percent on year in October for the 19th consecutive drop after falling 2.9 percent (revised down from a 2.4 percent decline) in September, 2.8 percent in August, 2.7 percent in July, 1.6 percent in June and 0.9 percent in May. To calculate real wages, the ministry uses the overall consumer price index minus the structurally weak owners' equivalent rent, which rose 3.9 percent on year in October after rising 3.6 percent in September.

Consumer inflation in Japan picked up slightly in two of the three key measures in October as reduced subsidies for electricity and natural gas utilities slowed the sharp drop in overall energy costs and hotel fees jumped on pent-up demand, more than offsetting the effects of smaller processed food markups, data from the Ministry of Internal Affairs and Communication released last month showed.

Japan's real household spending is forecast to post its eighth straight drop on the year in October, down 3.0 percent, dipping further form decreases of 2.8 percent in September and 2.5 percent in August, as high costs for daily necessities kept consumers frugal and more eating out amid eased Covid restrictions means less spending on groceries for cooking at home. On the month, expenditures are forecast to mark their first decline in three months, down 0.6 percent after a 0.3 percent rise in September and a 3.9 percent surge in August as the protracted heat wave dampened demand for autumn clothing and other seasonal goods.

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.