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A closer look at Japan’s February household spending: Durables and services expenditures hit hard, as predicted

Last Friday a brief post went up noting that household spending had been reported to be unchanged year-on-year in February. Then, the Statistics Bureau’s website started acting funny, and was inaccessible when I went to download the Excel charts last night. This morning I checked the site to discover that the Statistics Bureau has done a full redesign. It certainly looks better than before, though I miss the handy links that had been running down the left-hand side of the page. At least they flushed that money down the toilet before the end of the fiscal year…

Although the website itself changed, household spending did not in February. After seeing increases of 2.2% in December and 3.6% in January, it appears that households may have tightened their belts a bit in the face of rising prices and did not open their wallets so freely in February. According to the Statistics Bureau, spending at households with two or more people came to 275,827, which was unchanged against a year ago. Income at households with a salaried worker as head of household came to 476,282 yen, which was down 0.1% from a year ago, while spending at workers’ households was at 298,539 yen, up 1.4% from last year.

Here’s a breakdown of spending per category, along with changes against February of last year:

Furniture & Household Goods: 8,285 yen (+14.6%)
Fuel, electric and water: 30,165 yen (+9.7%)
Medical care: 13,294 yen (+8.1%)
Food: 63,981 yen (+2.2%)
Culture & recreation: 28,106 yen (+1.0%)

Education: 12,274 yen (-1.8%)
Clothing & footwear: 10,215 yen (-2.7%)
Other: 61,432 yen (-4.5%)
Transportation & communication: 33,884 yen (-5.4%)
Housing: 14,191 yen (-8.3%)

Food price increases have been much discussed recently, though the increase does not yet seem severe. Last February, households spent an average of 61,888 yen on food, while 63,981 was spent this year. That makes for a difference of 2,093 yen. On the other hand, Fuel, light and water charges jumped by 3,720 yen from last year’s figures.

The Nikkei has speculated that strong food price increases from April might force households to hold back on spending in other areas. CPI data showed that food prices rose 1.2% in February, while instant noodle prices shot up 17%, spaghetti was up 13.2%, and mayonnaise prices jumped 10%. We also know that further price hikes are expected from today, especially with regard to wheat-based products.

Thus far, I have been in agreement with the Nikkei’s assessment. With wages not showing much upward pressure, it seems inevitable that households will tighten their spending in nonessential areas, and that could cause damage to domestic spending, which accounts for about 55% of GDP. Claus Vistesen voiced the same sentiment on his Alpha.Sources blog:

I don’t see how we can expect the Japanese consumers to power ahead. Basically, the Japanese consumer is now in a double pinch as are many other consumers around the world. Real economic activity is decidedly headed down but inflation remains stubbornly high and even on the rise. Moreover and given the fact that inflation is coming mainly from primary goods such as energy and food (i.e. for which demand elasticity is low) it leaves consumers with less income for other goods.

Digging into the data shows that such a situation was finally upon us in Feburary, as household spending broke down like this:

	Goods and Services	Goods Only	Durable & Semi Durable Goods	Services Only
December	+2.34%	+0.99%	+.97%	+4.20%
January	+4.39%	+2.98%	+8.09%	+6.40%
February	+1.30%	+4.76%	-3.65%	-3.28%

Notably, we saw a decline in spending on durable goods, semi-durable goods and services in February after something of a binge in January, when both household income (-1.4%) and disposable income (-2.8%) had been down. Perhaps more tellingly, spending on services dropped below 100,000 yen in February (to 99,371 yen) for the first time since February 2006, when it stood at 99,417 yen. Of course, February tends to have the lowest spending on services of any month, and it would be difficult to predict services spending to be below 100,000 again in March - something around 111,000 to 113,000 seems more correct, unless the pace of spending on services continues to decline strongly, in which case that figure may dip below 110,000 yen, which it also did in February 2006.

Point is, many observers have been predicting that with wage growth nearly nonexistent and food, fuel and utility prices on the rise, that Japan’s consumers would hold back spending on nonessential goods and services. Until February, we had not seen any sign of this - and quite the opposite happened in January. However, in February we have finally seen the pullback in spending on big ticket items as well as services. This makes March data all that more interesting, since it seems certain to be a prelude to what could become a worrying trend in April.

And let’s not even start thinking about what psychological effect the temporary (or perhaps longer) suspension of the gas tax from this month might have…

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