Japanese consumption falls

Emily Nicol

Japanese consumption falls for third consecutive month amid pandemic restrictions and higher prices
The latest pandemic wave, declining confidence and hit to households’ real disposable income unsurprisingly have weighed heavily on Japanese consumer spending since the start of the year. The BoJ’s consumption activity index – arguably the best timely gauge of the national accounts measure of private consumption – published overnight reported the third consecutive decline in spending in February, down 1.1%M/M. The weakness in part reflected a marked drop in consumption of durable goods (-6.2%M/M) as pandemic-related restrictions likely restricted footfall. But there was a further decline in spending on services too (-2.2%M/M) to leave it trending so far in Q1 almost 5% lower than the Q4 average.

Overall, with the decline in consumption in January larger than previously estimated (-3.7%M/M), the BoJ’s average index in the first two months of Q1 was 3% lower than the Q4 average. So, while consumption was inevitably given a boost in March as restrictions were relaxed, increased uncertainty and higher prices will likely limit any potential rebound. And the expected drag from private consumption will likely see GDP growth back in negative territory in Q1.

BoJ consumer survey reports deterioration in households’ financial situations amid higher inflation expectations
The BoJ’s latest quarterly consumer opinion survey today flagged that the share of households that have become financially worse off over the past year rose to 42% in the three months to March, to leave the associated diffusion index of households’ financial situations at its lowest since June 2020. And the share of households expecting to reduce spending over the coming year rose as expectations for prices over the coming year were revised notably higher. Indeed, most notably from today’s survey was that more than 83% of respondents were expecting prices to rise over the coming year, even before the latest spike in energy and commodity prices amid the Ukraine war. The average forecast for the headline CPI rate in twelve months’ time jumped to 6.6%Y/Y, from 5.5%Y/Y in January. While that’s an unrealistic given that Japan’s headline CPI rate stood at just 0.9%Y/Y in February, the BoJ might well take some comfort in this rise in inflation expectations.

German IP ekes out modest increase in February on energy output

While yesterday’s German manufacturing turnover data had implied a decline in output in February, today’s figures reported that industrial production managed to eke out a modest increase that month, by 0.2%M/M. But this reflected a near-5%M/M increase in energy output, which returned back above the pre-pandemic level for the first time. Indeed, construction activity slipped back in February (-0.7%M/M), while manufacturing production was unchanged from January to be still roughly 5% lower than its level two years ago.

In terms of product-type, production of intermediate goods rose for the fifth consecutive month in February (0.5%M/M), while output of consumer goods jumped 4.4%M/M to be some 2½% higher than the pre-pandemic level. But production of capital goods fell (-2.0%M/M) in part due to supply bottlenecks affecting the availability of key inputs. Indeed, production of machinery and equipment fell more than 2%M/M, with autos output declining for the second successive month (-1.3%M/M), with the latter still a little more than a quarter lower than the pre-pandemic level.

While overall industrial output was revised lower in January (with growth revised down by 1.3ppt to 1.4%M/M), this still left production trending so far in Q1 more than 2% higher than the Q4 average. Of course, today’s figures largely reflect conditions ahead of the Russian invasion in Ukraine. And we would expect to see a sharp decline in activity in March, not least in part reflecting increased supply-side challenges.

Euro area retail sales set to report only modest growth in February; ECB account to be watched closely
This morning will also bring euro area retail sales for February. Again these will largely reflect conditions ahead of the Russian invasion in Ukraine. But after only a modest increase in January, any rebound in February following the relaxation of pandemic restrictions seems likely to be limited by the adverse impact of high inflation on real disposable incomes. An increase of about ½%M/M is a reasonable expectation.

Of course, likely of most interest from the euro area today will be the ECB’s account from the March meeting when the Governing Council decided to accelerate the pace of reduction in its asset purchases this quarter and left future policy decisions data-dependent. These will offer further insight into the initial debate on the expected economic impact of, and appropriate policy response to, Russia’s invasion of Ukraine.

BoE Decision Maker Panel survey data due, while Chief Economist Pill to give opening remarks at a BoE-hosted conference
On a day bereft of top-tier UK data, today will see the BoE publish its Decision Maker Panel survey data for March, which is likely to flag the increase in uncertainty with respect to the economic outlook in light of the Ukraine war. Meanwhile, BoE Chief Economist Pill will also give opening remarks at a BoE-hosted conference on sovereign bond markets.

Jobless claims and consumer credit numbers on the docket in the US
A relatively quiet day for US economic data brings the usual weekly jobless claims numbers as well monthly consumer credit figures for February. 

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