Japan’s consumer confidence index plunges to near record-lows in May

June 15, 2008
By Ken Worsley

Last month, we reported that April’s consumer confidence index had plunged to 5 year lows on the back of worries over increased prices and job uncertainty. On Friday, the Cabinet Office released figures for May, and we have seen yet another dive in the index. According to the Cabinet Office, the consumer confidence index fell from 35.2 in April to 33.9 in May.

May’s score was the lowest seen since December 2001, when the index dipped to 33 points. In its current form, the survey has been carried out since 1982 (though it was done quarterly instead of monthly until 2004). The 33 points registered in December 2001 stands as the all-time low.

The Consumer Confidence Index generates five scores, each of which is considered positive when above 50, and pessimistic when below the 50 mark. Here’s a breakdown for March’s figures, with the change from last month:

Consumer Confidence Index: 33.9 (-1.3)
Overall Livelihood: 31.5 (-1.5)
Income Growth: 37.5 (–0.9)
Employment: 36.0 (-1.1)
Willingness to buy durable goods: 33.2 (-1.5)

As in April, all five categories showed a decline. The “Willingness to buy durable goods” remains worryingly low. In fact, May’s score was the second lowest of all-time, after the 31.4 registered in March 1997.

At 31.5, the “Overall Livelihood” score is at its lowest level ever, breaking its record from the previous month. It’s also worth mentioning that no single score has ever dipped below the 30 point mark.

On the same day as these results were released, the Bank of Japan announced that it would not raise interest rates from their current 0.5% level. In his statement, Bank of Japan Governor Masaaki Shirakawa said that compared to April, “More now recognize the downside risk that domestic demand poses for the economy as well as the risk of rising prices.”

On Wednesday, two days before the survey was released, the Nikkei had this to say about consumer spending:

A Cabinet Office survey for May may weigh heavily on domestic demand-based stocks if it shows a further month-on-month deterioration in consumer confidence. The survey will be released on Friday, just when the summer sales season is about to get into full swing and with higher prices for daily necessities such as gasoline and bread making the outlook for consumer spending increasingly uncertain.

Since it hasn’t yet been reported in the major media, we have been following the deterioration of household spending on services and durable goods each month. As the “Willingness to buy durable goods” sub-index continues to fall lower and lower, strong declines in spending on durables and semi-durables have been seen: -6.56% in April, -10.41% in March and -3.65% in February. May’s consumer confidence data leaves little reason to be optimistic about household spending for that month. Overall household spending was down 2.7% in April, with a 0.1% decline in spending on goods and a 2.35% decline in spending on services.

May’s household spending data isn’t due out for a couple of weeks, though department store sales figures will be released later this week.

Filed Under Cabinet Office, Consumer Confidence Index, Economic Reports