Japanese household spending falls in May

Emily Nicol

Japanese household spending falls in May amid higher prices, but still on track for solid gain in Q2
Contrasting with the ongoing recovery in consumption reported in yesterday’s BoJ activity numbers, today’s household expenditure survey suggested a notable drop in spending in May, by 1.9%M/M. And the weakness was broad based, with the most striking declines in clothing (-12.3%M/M), transport and comms (-9.3%M/M) and household appliances (-2.8%M/M). Admittedly, this came on the back of sizeable gains in the previous two months and so spending was still trending so far in Q2 some 2% high than the Q1 average and therefore suggestive that consumption will give a sizeable boost to GDP growth in Q2.

But today’s figures also illustrated the recent increase in prices. Indeed, in nominal terms, spending was trending in April and May around 3% above the Q1 average. And the impact of prices was perhaps unsurprisingly most evident in spending on energy – up 5.6% on an equivalent basis in nominal terms, but just 1.9% in real terms – and food – up 1.4% (nominal) and down 0.2% (real). And with households’ real disposable incomes declining, the near-term outlook for consumption remains uncertain.

Economy watchers survey points to a deterioration in conditions
While the Japanese PMIs earlier this week pointed to ongoing improvement in business conditions in June, today’s economy watchers survey offered a more downbeat assessment. The headline current conditions diffusion index fell for the first month in four in June, by 1.1pt to 52.9, albeit a level that still represents ‘improving’ conditions and left the quarterly DI more than 11pts higher than in Q1. With the exception of services, where the relevant DI rose 1pt to 61.1, a seven-month high, the weakness was widespread. Indeed, the DI for household-related demand fell 0.4pt to 53.4, while the DI for corporate related demand fell a steeper 2.4pt to 48.0, flagging the persisting challenges facing manufacturers in particular. Furthermore, the survey’s outlook index fell a steeper 4.9pts to 47.6, a four-month low and firmly below the key-50 reading, with survey respondents citing increasing concerns about the impact of rising costs, not least associated with the war in Ukraine.

UK jobs survey suggests softest jobs growth for sixteen months amid heightened uncertainties
Amid the weakening in UK economic growth since the start of the year, today’s KPMG/REC Report on Jobs suggested that, while the labour market remains tight, jobs growth was the slowest for sixteen months in June. In particular, the index for permanent staff appointments fell for the seventh consecutive month and by 4.5pts to 54.8, the lowest reading since February 2021 and almost 18pts lower than last summer’s peak. While the lack of appropriate candidates continued limit hiring, recruiters also cited that demand had also eased amid increased economic uncertainty and elevated costs – indeed, the relevant index fell 3.2pts, the most since January 2021, to a fourteen-month low. And while the survey suggested that vacancies continued to rise, June saw the softest increase since March 2021. So, while the persisting imbalance between labour demand and supply continued to drive starting salaries higher, the relevant survey index also eased to it softest since August, albeit remaining well above the series average.

US payrolls growth likely to have slowed on concerns about the economic outlook
The key focus in the US will be today’s labour market report for June. Concerns of tighter monetary policy and recession ahead has likely led many businesses to become more cautious with their hiring intentions. Indeed, yesterday’s unemployment claims maintained the upwards trend seen in recent weeks. As such, job growth is likely to be well short of the average of 590k in the second half of last year. Our colleagues in Daiwa America are forecasting an increase in non-farm payrolls of 300k, a touch firmer than the Bloomberg consensus. And they expect this to be strong enough to hold the unemployment rate steady at 3.6%. This afternoon will also bring the latest consumer credit data for May.

Italian IP forecast to have fallen in May
A relatively quiet end to the week for euro area releases, with just Italian IP numbers for May of note. Contrasting with the modest growth seen in yesterday’s German figures (+0.2%M/M) and the surge recorded in Ireland (+13.9%M/M), today’s Italian data are forecast to have declined by around 1½%M/M, largely reversing the increase reported in April. But this would still leave output trending so far in Q2 more than 2% above the Q1 average. This would contrast to the downwards trend seen Germany and France so far. 

Categories : 

Back to research list


This research report is produced by Daiwa Securities Co. Ltd., and/or its affiliates and is distributed by Daiwa Capital Markets Europe Limited in the European Union, Iceland, Liechtenstein, Norway and Switzerland. Daiwa Capital Markets Europe Limited is authorised and regulated by The Financial Conduct Authority and is a member of the London Stock Exchange and Eurex Exchange. Daiwa Capital Markets Europe Limited and its affiliates may, from time to time, to the extent permitted by law, participate or invest in other financing transactions with the issuers of the securities referred to herein (the “Securities”), perform services for or solicit business from such issuers, and/or have a position or effect transactions in the Securities or options thereof and/or may have acted as an underwriter during the past twelve months for the issuer of such securities. In addition, employees of Daiwa Capital Markets Europe Limited and its affiliates may have positions and effect transactions in such securities or options and may serve as Directors of such issuers. Daiwa Capital Markets Europe Limited may, to the extent permitted by applicable UK law and other applicable law or regulation, effect transactions in the Securities before this material is published to recipients.

This publication is intended for investors who are not Retail Clients in the United Kingdom within the meaning of the Rules of the FCA and should not therefore be distributed to such Retail Clients in the United Kingdom. Should you enter into investment business with Daiwa Capital Markets Europe’s affiliates outside the United Kingdom, we are obliged to advise that the protection afforded by the United Kingdom regulatory system may not apply; in particular, the benefits of the Financial Services Compensation Scheme may not be available.

Daiwa Capital Markets Europe Limited has in place organisational arrangements for the prevention and avoidance of conflicts of interest. Our conflict management policy is available at  /about-us/corporate-governance-regulatory. Regulatory disclosures of investment banking relationships are available at https://daiwa3.bluematrix.com/sellside/Disclosures.action.