Consumer Confidence Index slips yet again in December

January 18, 2008
By Ken Worsley

Earlier today, the Cabinet Office released its Consumer Confidence Index data for December 2007, and the results are not pretty. After November’s figures showed consumer confidence dipping to 39.8, its lowest level since December 2003, December saw another significant fall to 38.0. This is the lowest score we’ve seen since June 2003, when Japan’s consumer confidence stood at 36.9.

We can’t say the the December figures are surprising; in fact, there’s been little excitement watching these figures get worse and worse each month. Let’s look at a breakdown for the individual category scores in December:

Consumer Confidence Index: 38.0 (-1.8)
Overall Livelihood: 34.9 (-2.1)
Income Growth: 39.6 (–1.1)
Employment: 40.6 (-2.5)
Willingness to buy durable goods: 37.0 (-1.4)

Although some of the categories did not decline as severely as they had last month, we still see a decline in all five categories. At this stage, only the employment figure is above 40. A bit of trivia: the last time that all five categories registered scores below 40 was back in September 1998. In fact, that was the only time that all five scores were so low at the same time.

We are thus on a serious downtrend. Since we have all of the 2007 data, we can now compare it over the whole year against 2006 (Click on the image to see a full-size version).

The downtrend seems to have started in late 2006 and really picked up steam towards the end of this past summer. Although we’ve been writing about a few of the causes of downward pressure all along, it might help to bring up a few yet again.

First, food and oil prices continue to rise while wages are not. Japan’s core CPI is just starting to show inflation, thanks to higher oil and energy prices. However, when food costs are added in, we start to see while households are worrying more and more. Just yesterday we heard that pasta prices are set to rise in 2008.

We also have a situation in which higher oil and producer prices are forcing beer companies to raise prices in 2008, despite having sold a record low number of cases of beer in 2007 (beating the previous record that was set in 2006).

Also in December, wholesale prices were up for the 46th straight month, with a 2.6% increase. This should lead us to a long discussion of international commodity prices. It won’t, but what we know is that thus far, Japan’s consumers have not had much of these higher producer costs passed on to them. We believe that such a process is just beginning right now, and that it could prove to be very painful, both economically and politically, for Japan.

In a speech made in Niigata on Wednesday, Banking Minister Yoshimi Watanabe said that some industries are “suffering” due to increased producer costs. That’s strong language. Then again, he was speaking in a rural area. Then again, that’s strong language.

Earlier this week, the Bank of Japan released poll data showing that 86% of respondents believe that consumer prices will increase in 2008. This is the highest rate ever measured in this poll, and is 14.6% higher than the previous poll taken in September (the most recent poll was taken mainly in November).

In other words, households are taking notice and we will most likely start to see some spillover. Which means we’re not expecting to see considerably higher consumer confidence readings any time in the next couple of months, unless oil prices go back under $70 a barrel. Not likely.

Filed Under Cabinet Office, Consumer Confidence Index, Economic Reports