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Consumer Confidence Index slides again in January; Government subsidies for full-time employees?

Yesterday, the Cabinet Office released its Consumer Confidence Index data for January 2008, and the index showed a decline for the fourth consecutive month. After December’s figures showed consumer confidence dipping to 38.0, its lowest level since June 2003, January saw another fall to 37.5.

We can’t say the the continued fall in consumer confidence is surprising, even though recent GDP data showed a slight (0.2%) increase in consumer spending. Consumer confidence scores tend to factor in future expectations of the economy, and the January data shows nearly 85% of households expecting to see prices increase over the coming year. Let’s look at a breakdown for the individual category scores in January:

* Consumer Confidence Index: 37.5 (-0.5)
* Overall Livelihood: 35.1 (+0.2)
* Income Growth: 39.4 (–0.5)
* Employment: 38.6 (-2.0)
* Willingness to buy durable goods: 36.7 (-0.3)

First, we should note that while all five scores fell in January, we did see an increase in the “Overall Livelihood” category in January. However, scores for “Income Growth” and “Employment” continue their declines. A year ago, in January 2007, the “Income Growth” score stood at 44.7 and the “Employment” score was at 51.8. Both would then see an increase in February. Thus, over the past year, we have seen the “Income Growth” score shed 5.3 points and the “Employment” index decline by a whopping 13.2 points.

Although “Overall Livelihood” increased slightly in January, a year ago it stood at 45.8, meaning that we have seen this score fall by 10.7 points over the past year. The “Willingness to buy durable goods” score has declined 13.5 points over the past year, while the overall index has slid 10.6 points.

This is quite a strong downtrend, and we don’t see any reasons for it to reverse any time in the next quarter. The specter of higher prices to come is not expected to clear up, and we fully expect to see an announcement of further losses at financial firms connected to subprime holdings, which may put a damper on hiring.

The only positive news we’ve heard recently was presented in a non-positive way. In this morning’s edition of the Nikkei, we learned that the government is planning to encourage firms to switch more workers from part-time to full-time status. Of course, this is something that can potentially cost companies quite a bit of money, and thus bite into their profits. Thus, the government needs to find some way of reducing the costs incurred by such moves.

The solution? As the Nikkei puts it:

To entice more companies into offering full-time positions to their contract and part-time workers, the Labor Ministry plans to set up a subsidy program in April to support hiring of full-timers by small and midsize businesses.

Subsidies? We’re going to see employment further subsidized? Is anyone serious about treating the underlying casuses of the problem? At any rate, the government is apparently seeking 500 million yen in next year’s budget to subsidize small and medium size firms. Of course, these newly-minted full-time workers would be automatically enrolled in the nations pension program, and the subsidy is meant to offset that cost.

The Nikkei also tells us:

The Labor Ministry believes that more full-time workers, who receive higher wages than their non-full-time counterparts, will help bring stability to the nation’s pension system and other social security programs.

Sure, provided they contribute more than the 500 million yen it cost to get them on the rolls in the first place. And what happens when the subsidy is cut off? Will small and medium size firms simply be left to suffer the legacy costs?

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