Japan's real household spending posted its first year-on-year drop in three months (the 8th in 12) in February but the decrease was only slight at -0.5%, and it would have risen 1.8% if the boosting impact of the lunar new year in February 2024 were excluded. It was much firmer than the median forecast of a 3.4% slump and followed a slowdown to +0.8% in January from +2.7% in December.

The decline was mainly caused by the volatile factor of home repairs/maintenance, and also in reaction to higher medical and dental bills paid a year earlier. Consumers slashed purchases of vegetables and fruits amid rising costs and shied away from buying appliances that were not in an urgent need for replacement. Real wage growth is falling behind inflation again, keeping households frugal.

The core measure of real average household spending (excluding housing, motor vehicles and remittance), a key indicator used in GDP calculation, also fell 0.8% on the year after dipping at the same rate the previous month, when overall spending edged up 0.8%.

On the month, real average expenditures by households with two or more people unexpectedly surged a seasonally adjusted 3.5% (vs. consensus -0.5%), partially rebounding from the 4.5% plunge the previous month.

The average real income of households with salaried workers slipped 2.3% on year in February for the second straight drop after falling 1.1% in January. The average real income of the primary bread earners was nearly flat, down 0.1% for the first drop in five months after rising just 0.2% the previous month. Their spouses' average income slumped 9.6% after marking its first drop in 12 months with a 1.5% dip. In nominal terms, the average household income grew 1.9%, slowing from recent increases of 3.5% in January and 7.2% in December.

Japan's real household spending is forecast to post a seventh drop in 12 months in February, down 3.4% on year, after the rate of increase slowed to 0.8% in January from a 2.7% jump as consumers slashed purchases of vegetables and fruits amid rising costs and shied away from buying appliances that were not in an urgent need for replacement. Real wage growth is falling behind inflation again, keeping households cautious.

On the month, real average expenditures by households with two or more people are expected to dip a seasonally adjusted 0.5% after slumping 4.5% the previous month.

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.