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Japan’s consumer confidence at four year low in November

Yesterday, the Cabinet Office released the results of its consumer confidence survey for November, and the results were not pretty. Last month, we noted that consumer confidence was at three year lows and was coming dangerously close to being in the “30s.” That happened in November.

The overall consumer confidence index itself fell 3 points to 39.8, the lowest score seen since December 2003. The score for “Overall Livelihood” fell 4 points to 37, for its lowest score since March 2003.

The consumer confidence index registers a score that is considered even at 50. A score above 50 indicates that optimists outnumber pessimists. The survey has not hit the 50 point level since April 2006, and has not been above the 50 point level since the second quarter of 1990, when it was at 50.3.

The report generates five total scores: The Consumer Confidence Index, Overall livelihood, Income Growth, Employment, and Willingness to buy durable goods. The breakdown of those scores for October was as follows:

• Consumer Confidence Index: 39.8 (-3.0)
• Overall Livelihood: 37.0 (-4.0)
• Income Growth: 40.7 (–1.5)
• Employment: 43.1 (-2.2)
• Willingness to buy durable goods: 38.4 (-4.4)

Every category showed a significant fall, and we think this is a reflection of what one might call a collapse in consumer sentiment concerning the state of the economy. But don’t listen to us - here are some quotes from around the media:

Junko Nishioka, senior economist at ABN Amro: “This marked deterioration in both sentiment and wages means we can’t expect much growth in consumer spending.”

Yuji Shimanaka, chief economist at Mitsubishi UFJ Research and Consulting: “Consumer sentiment is in shreds…Their bleaker outlook symbolizes Japan’s weakening economy.”

Yukio Shigefuji, a taxi driver in Tokyo: “I don’t see a brighter outlook for the economy. Customers only use taxis when they can pay for them with their companies’ budget.”

A government official: “This month’s decline is mostly due to consumers’ outlook that prices will rise due to high oil and commodities prices as well as the recent news reports about price hikes.”

Also on Tuesday, economy minister Hiroko Ota announced a plan to provide relief for high oil prices through the “easing of loan repayment conditions for smaller companies and provides aid to low-income people for buying heating oil.” We assume this will have between zero and little real effect on sentiment or performance.

Of course, higher prices (if they do come) might be offset by gains in wages. That hasn’t happened yet this year, or at all during the current period of economic growth. On Tuesday, Keidanren (Japan Business Foundation) Chairman Fujio Mitarai told reporters, “At companies that have strong finances, monthly base pay will be raised if wages are below average.” How many firms paying below average wages currently have strong finances? Given that nearly 70% of Japan’s firms are in the red (ahem…), how can we take such a comment seriously? Are we to believe that McDonalds will raise wages?

That sounds great. It reminded us of what Mr Mitarai said last December: “As the economy becomes more robust and corporate performances improve, those effects should cross over to the household sector.” After he said that, average wages fell in 9 of the next 10 months. We almost wish he’d say the opposite…

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