Japan household spending falls again in November, gloom may persist

TOKYO (Reuters) - Japanese household spending fell for a second straight month in November and by more than forecast, suggesting that a higher sales tax may weigh on private consumption for some time.

FILE PHOTO: Women are reflected in a window as they pass a boutique in a shopping district in Tokyo, November 26, 2015. REUTERS/Thomas Peter

The world’s third-largest economy is struggling to regain momentum after households tightened their belts following the sales tax hike in October and as slower global demand hit exports.

Weak consumption will add to the risk that economic growth could stall in the final quarter of 2019 or even contract.

Household spending fell 2.0% in November from a year earlier, government data showed on Friday, worse than a median forecast for a 1.7% decline.

It tumbled 5.1% in October, the biggest fall since March 2016 when spending slid 5.3%.

From the previous month, spending rose 2.6% compared with the median estimate for a 3.4% gain and was a rebound from the steep 11.5% monthly drop in October.

“The pace of a pick-up in household spending in November after a huge drop in October is weak. It is unclear if the spending will recover steadily in coming months given the tax burden and tepid wage recovery,” said Yoshiki Shinke, chief economist at Dai-ichi Life Research Institute.

“Not only consumer-related data, but also other data, especially factory output, are weak. The focus will be how much the economy shrank in the fourth quarter and how much it will recover in the current quarter.”

A pick-up in consumer spending is needed to help underpin the economy and achieve the Bank of Japan’s elusive price target.

Although some companies started passing on rising costs to households, many are still reluctant to do so for fear of losing customers as higher prices could dent consumer spending.

Data showed spending on items such as durable goods, including air conditioners, remained weak, but picked up on items such as foods and personal computers.

Japan raised the sales tax to 10% from 8% on Oct. 1, a move that is seen as critical for fixing the country’s tattered finances.

But recent weak data on exports and factory output as well as impact from the tax hike suggest the economy could shrink in the fourth quarter after growing an upwardly revised annualized 1.8% in the July-September period.

Other data released on Friday was also downbeat.

The index of coincident economic indicators, which consists of a range of data including factory output, employment and retail sales data, slipped a preliminary 0.2 point to 95.1 in November from the previous month, the lowest reading since February 2013, the Cabinet Office said.

The government kept its view on the index as “worsening”, which indicates the export-reliant economy might face slipping into recession.

Sluggish wage recovery is adding to worries about private spending, with inflation-adjusted real wages declining at their fastest pace in four months in November.

A central bank survey showed Japanese households’ confidence in the economy sank to a five-year low in the three months to December.

Japan launched a $122 billion fiscal package last month to support stalling growth and as policymakers look to sustain activity beyond the 2020 Tokyo Olympics.

Editing by Clarence Fernandez and Jacqueline Wong