Japan's real household spending fell a smaller-than-expected 1.2 percent on year in March after a 0.5 percent slip in February (down 2.7 percent without the leap-year effect) as consumers remain cautious amid elevated costs for food and other necessities, but it was partly offset by a rebound in automobile purchases thanks to resumed vehicle production after suspension for nearly two months over a safety test scandal. The median forecast was a deeper 2.3 percent drop.

The 13th straight year-over-year decrease was led by lower electricity bills paid in March for February, when mild weather reduced heating needs. Households also continued giving less gift money as Covid-era necessity has simplified ceremonies and lowered their costs. Pent-up demand for traveling has waned after subsidies for hotels and transportation aimed at supporting the tourism industry had been phased out.

On the month, expenditures rose a seasonally adjusted 1.2 percent, stronger than the median forecast of being unchanged (forecasts ranged from a 3.4 percent slump to a 0.5 percent rise) following an equally solid 1.4 percent gain, which was the first increase in five months. Lower temperatures in the first half of March dampened demand for spring clothing but sales of formal wear for graduation and entrance ceremonies were solid.

People continued spending more on eating out, but higher spending on automobiles in March may not necessarily be a welcome sign for the outlook for consumer spending. Compared to a year earlier, the number of vehicles purchased was the same but their prices were higher. The ministry could not determine whether consumers are shifting toward higher end models or high material costs are boosting vehicle prices. In addition, some parents had to send more money to their children studying away from home.

The core measure of real average household spending (excluding housing, motor vehicles and remittance), a key indicator used in GDP calculation, fell a larger 2.0 percent on the year in March after dipping 0.8 percent in February. The underlying trend is in place: Consumers are seeking lower prices for goods and services including a wide range of discount mobile phone communications plans.

Econoday's Relative Performance Index stands at minus 19, below zero, which indicates the Japanese economy is performing worse than expected. Excluding the impact of inflation, the RPI is at plus 4.

The average real income of households with salaried workers posted the 18th straight year-over-year drop but it was down just 0.1 percent in March and up 3.0 percent in nominal terms, improving from a 2.5 percent fall in February (up a nominal 0.7 percent), as many firms are raising wages to secure works amid widespread labor shortages. The main bread-earner's real income in the average household marked the 15th straight year-over-year drop, down 1.4 percent (up a nominal 1.7 percent), while the average spouse real income was up 3.9 percent (up a nominal 7.1 percent) for the second increase in a row after marking the first rise in 10 months in February.

Japan's real household spending is forecast to post its 13th straight drop on the year in March, down 2.3 percent, after edging down 0.5 percent in February (down 2.7 percent without the leap-year effect) and slumping 6.3 percent in January, which was caused by special factors (people spent less on tours as travel subsidies had wound down toward the end of 2023.) Consumers remain cautious amid elevated costs for food and other necessities and concerns that the yen's fall to 34-year lows will cause a resumed surge in import costs. On the month, expenditures are forecast to be unchanged after rising an above-forecast 1.4 percent in February. Lower temperatures in the first half of March dampened demand for spring clothing but sales of formal wear for graduation and entrance ceremonies were solid.

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.