Japan: Consumer spending somewhat weak in Oct-Dec – Nomura

According to the Family Income and Expenditure Survey (FIES), Japan’s real consumer spending in December 2017 fell 0.1% y-y, undershooting the consensus forecast (Bloomberg survey median) for a rise of 1.3%, notes the research team at Nomura.

Key Quotes

“Core consumer spending, which factors out spending in volatile categories such as housing, was down 1.2% m-m, and the Oct-Dec figure was also weak (-0.5% q-q). The results are used to estimate GDP, and will thus weigh on the Oct-Dec estimate.”

“Retail sales in the December Current Survey of Commerce rose 0.9% m-m, while real retail sales for the month (adjusted by Nomura) rose 0.3%. These sales have been up m-m, albeit only slightly, for two straight months, which seems to indicate that retail sales are recovering after the weakness due to poor weather in October. On a quarterly basis, however, real retail sales were up just 0.1% q-q in Oct-Dec. The quarterly figure did not show much of a recovery from the -0.3% q-q figure in Jul-Sep, although poor weather was a contributing factor.”

“Data suggest that inflation could push down consumer spending sooner rather than later

While the consumer confidence index and employment conditions were solid in OctDec, supply-side and demand-side statistics both indicate that consumer spending was somewhat weak. We believe that inflation is likely one reason that consumer spending has been slow to pick up since slumping in Jul-Sep on a hit from poor weather. In the Consumer Confidence Survey, a greater percentage of households with 2-plus members responded that prices were on the rise in Oct-Dec. Oct-Dec retail sales were up 1.4% q-q in nominal terms. We have been expecting high growth in consumer spending to support higher share prices through 2018 H1, but this most recent data suggest that inflation could put a damper on consumer spending sooner rather than later.”

“Unemployment up, but leading indicators for employment improve

The unemployment rate in December 2017 stood at 2.8%, up from November, and 0.1pt higher than the consensus estimate of 2.7%. A breakdown shows that the number of unemployed persons was up 0.5% m-m and the number of employed persons fell 0.1%, indicating that employment conditions weakened slightly in December. That said, the job openings-to-applicants ratio rose m-m to 1.59x, 0.2pt higher than the consensus estimate. The number of new job openings, a leading indicator for employment conditions, also rose by 0.05pt m-m. Overall, labor supply-demand conditions remained tight, and we think that improvement in employment conditions will continue.”