Japan Inc sounds alarm on consumer spending
11/10/2015 06:58
* Corporate earnings undermine optimism about consumer
spending
* Low wage growth, rising food prices pinch households
* Stuttering economy a growing headache for policymakers
By Izumi Nakagawa and Stanley White
TOKYO, Oct 11 (Reuters) - Do not believe in official
statistics, Japanese retailers seem to be saying, as they cut
earnings forecasts and warn of lacklustre consumer spending, a
key growth engine for Japan at a time when exports and factory
output are stalling.
If you go by the larger-than-expected 2.9 percent gain in
household spending in August - the first year-on-year rise in
three months - then consumption looks like it is finally alive
and well again, after a sales tax hike last year stifled the
economy. urn:newsml:reuters.com:*:nL3N12124I
But profits of retailers suggest the spending data, which
has a small sample size, has not captured the full picture.
Restrained household consumption raises the stakes for a central
bank policy meeting on Oct. 30, and for the government's plan to
flesh out new economic policies before the year-end.
"Consumer spending has ground to a halt," said Noritoshi
Murata, president of Seven & i Holdings 3382.T . "There are a
lot of concerns about the global economy and not many positives
for consumption. Weak spending could continue into the second
half of the fiscal year."
Seven & i, which operates Japan's ubiquitous 7-Eleven
convenience stores, on Oct. 8 trimmed its full-year profit
forecast by 1.6 percent to 367 billion yen ($3.05 billion) and
cut its revenue forecast by 3.9 percent to 6.15 trillion yen,
triggering a fall in its shares in Tokyo.
The main problem is wages are not rising fast enough to keep
pace with rising food prices, and consumers are starting to cut
back on other goods.
Real wages, adjusted for inflation, rose 0.5 percent in July
from a year earlier. That was the first gain in 27 months. But
wage growth subsequently slowed to 0.2 percent in August, and
summer bonuses fell from last year, government data shows.
Another problem is more and more workers are getting stuck
in jobs with low pay. Part-time and irregular workers comprised
a record 37.4 percent of the workforce last year, according to
the National Tax Bureau.
Irregular workers earn on average less than half of what
regular full-time workers earn, tax data show.
The third problem is the government plans to raise the
nationwide sales tax again, to 10 percent in 2017 from 8
percent, and households are already changing their behaviour.
"Shoppers are tightening their purse strings," said Masaaki
Yoshizawa, senior managing director at apparel maker Onward
Holdings 8016.T .
"There is a lot of uncertainty about consumer spending, and
another sales tax hike is on the way. Women are cutting back on
clothes."
Onward Holdings had expected to make a 2.4 billion yen
profit in the six months ended September. But when it closed its
books, operating profit was only 200 million yen.
LOW GROWTH
Some economists worry consumer spending is now stuck in a
prolonged period of very low growth.
In June and July, same-store sales at Fast Retailing's
9983.T Uniqlo clothing outlets in Japan fell from a year
earlier before notching modest gains of 2.5 percent and 2.6
percent in August and September, respectively.
Earnings from Japan's retailers show consumer spending has
undergone a reversal from the early days of Prime Minister
Shinzo Abe's administration.
Shortly after Abe took office late in 2012, the wealthy
cashed in on a stock rally and went shopping. Unions got the pay
increases they asked for, and companies started raising retail
prices.
Since then, the monetary and fiscal measures taken by Abe to
rekindle Japan's economy have delivered uneven results.
A sales tax hike last year to 8 percent from 5 percent
helped tip the economy into a brief recession.
Now, the world's third-largest economy is at risk of falling
into its fourth recession in the past five years as exports,
factory output and consumer spending stumble.
Abe had a bold agenda of ending deflation and knocking down
the barriers to growth, but many economists say the requisite
policies never really materialised.
Now the retail sector is adapting to a return to more
subdued household spending.
"Some companies are starting to realise they've actually
driven away some customers by raising retail prices," said Norio
Miyagawa, senior economist at Mizuho Securities.
"The government's initial growth strategy did not really
expand the pie. Now the government is simply left trying to
redistribute wealth."
($1 = 120.2500 yen)
(Editing by Ryan Woo)
((stanley.white@thomsonreuters.com; +81 3 6441 1984
twitter.com/stanleywhite1; Reuters Messaging:
stanley.white.reuters.com@reuters.net))
Keywords: JAPAN ECONOMY/SPENDING