Japan's real household spending posted a 1.3% drop on year in October for a third straight decline as unusually mild weather dampened demand for autumn clothing and other seasonal goods while consumers remain frugal amid high costs for necessities and sluggish real wages. The headline number came in firmer than the median economist forecast of a 2.6% drop.

The core measure of real average household spending (excluding housing, motor vehicles and remittance), a key indicator used in GDP calculation, dipped 1.1% after eking out a slight 0.3% gain the previous month.

The decline was caused by a volatile factor of home maintenance and repairs, which trimmed real spending by 0.75 percentage point. Households also spent less on tuition fees (private universities), which pushed down spending by 0.59 point. The lingering heat wave slashed demand for clothing (men's suits and women's overcoats), which made a 0.26-point negative contribution.

Consumers spent more on funeral fees as the pandemic era health restriction have long been removed. Spending on electricity bills and vehicle purchases also increased from year-earlier levels.

On the month, real average expenditures by households with two or more people surged 2.9% after slumping 1.3% in September and rebounding a higher-than-forecast 2.0% in August. It was much stronger than the consensus call of a 0.3% rise.

The average real income of households with salaried workers rebounded 1.1% in October after falling 1.6% in September, which was the first year-on-year decline in five months, and rising 2.0% in August. The average real income of the primary bread earners posted its first rise in three months, up a slight 0.2%, while their spouses' average income marked the ninth increase in a row but with a similarly small 0.1% gain. In nominal terms, the average household income grew 3.7% following increases of 1.3% in September 5.6% in August.

In another set of data, total monthly average cash earnings per regular employee in Japan posted their 34th straight year-on-year rise, up 2.6% in October, after rising a downwardly revised 2.5% in September. Base wages rose 2.7% on year after rising a revised 2.6% the previous month.

In real terms, average wages were unchanged on year in October after falling a revised 0.4% in September after slipping 0.8% in August, edging up 0.3% in July and marking the first rise in 27 months in June with a 1.1% gain. To calculate real wages, the ministry uses the overall consumer price index minus the historically subdued owners' equivalent rent, which rose 2.6% on year in September.

Japan's real household spending is forecast to dive 2.6 % on year in October after falling 1.1% in September as the heat wave lingered well into the middle of the fall, dampening demand for autumn/winter clothing and other seasonal goods, and thus causing the national average sales of 70 department store chains to suffer its first year-on-year decline in nearly three years. Consumers remain frugal amid high costs for necessities and sluggish real wages.

On the month, real average expenditures by households with two or more people are expected to edge up 0.3% after slumping 1.3% in September and rebounding a higher-than-forecast 2.0% in August. The outlook remains uncertain, with economist forecasts ranging widely from a 0.9% drop to a 1.7% rise.

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.