Japanese wage numbers disappointed

Emily Nicol
Chris Scicluna

Japanese wage numbers disappoint at the start of the year, with real wage growth declining the most since 2014
Ahead of the BoJ’s monetary policy decision due at the end of the week and as the Shunto wage negotiations continue in the background, today’s labour earnings figures for January disappointed. Admittedly, some payback was anticipated following the bonus-fueled surge at the end of last year, when total earnings growth jumped 4.1%Y/Y, the most in almost 26 years. But the slowdown to 0.8%Y/Y in January was greater than expected and marked the softest pace for thirteen months. The weakening was broad-based, with a drop in special payments (-1.7%Y/Y) and the softest growth in overtime earnings (1.1%Y/Y) since March 2021. Most discouragingly, regular wage growth moderated 0.6ppt to just 0.8%Y/Y, similarly the weakest since end-2021, with a decline in annual earnings in the hospitality, construction and utilities sub-sectors where growth had previously been firm. Looking through the monthly volatility, regular wage growth edged down marginally on a three-month basis to 1.2%3M/Y. When adjusting for prices, real wage growth was even more disappointing, with total growth down more than 4%Y/Y, the most since 2014.

BoJ consumption activity index jumps in January on a rebound in spending on durable goods
Despite softer wage growth at the start of the year, today’s BoJ consumption activity data suggested a welcome recovery in spending in January, supported by the steady return of overseas visitors. In particular, the headline real index rose for the first month in three, by 1.3%M/M, with the index excluding tourist spending up a slightly smaller 1.2%M/M having declined at a steeper pace in the previous two months too. The rebound in January principally reflected a surge in durable goods (12.0%M/M), perhaps reflecting an easing in supply bottlenecks in the autos sector. Meanwhile, spending on services increased a more modest 0.6%M/M, while spending on non-durable goods fell for the third consecutive month (-0.1%M/M). Overall, given the weakening towards the end of last year, total consumption was only marginally above than the Q4 average (0.2%), with domestic spending (the index adjusted for tourist spending) around 0.1% below the Q4 average. And with households’ willingness to buy durable goods having fallen in February, we expect household expenditure to remain relatively subdued over coming months.

German factory orders up for 2nd month in January on aerospace demand but turnover suggests underwhelming growth in factory output
German factory orders rose for a second successive month in January, increasing 1.0%M/M following upwardly revised growth of 3.4%M/M in December. That left them 1.7% above the Q4 average. But given the marked decline seen from mid-2021 through to the end of last year, new orders in January were still down about 15% from the pandemic peak, 10.9% below the level a year earlier, and slightly below the pre-pandemic level in February 2020. Excluding the distortion of large-scale orders, growth in January was a touch firmer at 2.9%M/M, although that followed a decline in December, and the overall picture was little different. Domestic orders fell 5.3%M/M while new orders from the euro area fell 2.9%M/M but orders from elsewhere rose a firm 11.2%M/M buoyed by the aerospace sector. New capital goods orders rose 8.9%M/M, also supported by demand for motor vehicle engines, but orders of intermediate and consumer goods were weak, down 8.9%M/M and 5.5%M/M respectively. Looking ahead to tomorrow’s IP data, real manufacturing turnover rose 0.2%M/M following a revised drop of 1.5%M/M in December. While that would suggest that manufacturing output was little changed, overall industrial production should have been supported by a rebound in construction. However, probably at most half of December’s decline in IP is likely to be reversed in January.

Looking ahead, following last week’s flash consumer price inflation estimates, the ECB’s monthly survey of consumer expectations today will shed more light on households’ perceptions about the outlook for inflation at the start of this year.

BRC retail survey suggests downtrend in real sales on non-essentials continues
At face value, the latest BRC retail sales survey indices looked upbeat, with total sales values up 5.2%Y/Y in February and same-store sales up 4.9%Y/Y. However, the figures are flattered by high rates of inflation, which is running at roughly twice the rate as nominal sales, and so sales volumes remained well below levels a year earlier. According to KPMG which compiles the survey, high-street sales of clothing, footwear and accessories continued to decline in real terms, with other categories of non-essential items shifting into negative territory too. Barclays data for spending on credit cards was also consistent with a marked decline in real-terms spending last month. And while next week’s Budget statement is likely to confirm that the government intends to avoid the planned increase in household energy bills next month, the squeeze on household incomes seems likely to contribute to ongoing weakness in private consumption in Q1 and Q2 after real retail sales dropped for five successive quarters through to Q4.

All eyes on Fed Chair Powell’s testimony to Congress
Ahead of Friday’s payrolls report and Fed’s forthcoming policy-setting meeting on 21-22 March, all eyes today will be on Powell’s semi-annual monetary policy report to Congress. After the Fed slowed the pace of tightening at the 31 Jan-1 Feb to 25bps and hinted that the end of the tightening cycle might have been approaching, the US dataflow has significantly strengthened, with a string of upside surprises in terms of both economic activity and prices. And so, we would expect a relatively hawkish tone from Powell’s comments, reiterating that the Fed would respond to strong data if required. But he might also reiterate that the lagged impact of past tightening this cycle should be monitored, in a bid to perhaps temper expectations that the Fed will again increase the magnitude of rate hikes to 50bps.

Chinese trade surplus widens as drop in imports exceeds decline in exports
While the PMIs pointed to a notable recovery in China’s economic sentiment since the start of the year, today’s trade numbers served as a reminder that conditions still remain challenging amid still subdued domestic and external demand. Indeed, exports in the first two months of 2023 fell 6.8%YTD/Y, with notable declines to the US (-22%YTD/Y), EU (-12%YTD/Y), and UK (-15%YTD/Y). But this in part reflected a high base a year ago, when exports jumped 16.1%YTD/Y. And with the value of imports having dropped a steeper 10.2%YTD/Y, the trade surplus widened to $116.8bn, compared with $109.5bn a year ago. 

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