Japan's labour earnings disappointed

Emily Nicol
Chris Scicluna

Japanese wages and spending disappoint at the start of Q2
With this year’s Japanese spring wage negotiations having seemingly delivered the strongest increase in wages for thirty years – total pay for Rengo union employees is expected to rise on average by around 3½%Y/Y – the latest labour earnings figures published overnight therefore were somewhat disappointing. In particular, total wage growth unexpectedly slowed in April, by 0.3ppt to 1.0%Y/Y. And with inflation still well above the BoJ’s 2% target, real wage growth remained firmly in negative territory, slipping to -3.0%Y/Y, the second-lowest reading in eight years. Admittedly, the weakness in April reflected a drop in overtime earnings, which fell for the first time in more than two years, and subdued bonus payments growth. In contrast, regular pay rose 1.1%Y/Y in April, the firmest growth for four months and well above the average over the past decade (0.2%Y/Y). Moreover, this will likely reflect only a proportion of pay settlements this year, with MHLW suggesting that typically around 40% of these results expected to have been reflected in April, with that number rising through the summer.

According to the latest household survey, real disposable income was down compared with a year earlier for the seventh consecutive month in April, albeit by a more modest ½%Y/Y. So, household spending fell short of expectations that month too. In particular, total expenditure dropped for the third consecutive month, by 1.3%M/M, to leave it down 4.4%Y/Y, with steep declines in clothing, recreation, and utilities. When excluding the more volatile items, core spending fell by a more modest 0.7%M/M in April, nevertheless to its lowest level in fourteen months. While core spending was around 0.8% below the Q1 average, total spending was down more than 2½%.

German factory orders fall short of expectations as large-scale orders fall again
Germany’s factory orders release fell short of expectations in April, tallying with recent surveys flagging persisting challenges facing the sector. Contrasting with an expected bounce following the double-digit drop in March, total orders fell again in April, albeit by a more modest 0.4%M/M, to be down 10%Y/Y and at their lowest level since June 2020. Even when smoothing for recent monthly volatility, orders resumed the steady downwards trend in place since mid-2021, to be some 21% below the pandemic peak. Admittedly, the weakness again reflected large-scale orders, with orders for other vehicle construction (i.e. ships, railed vehicles, aircrafts, spacecrafts and army vehicles) down a further 34%M/M, while machinery and equipment also fell more than 6%M/M. When excluding major items, orders actually rose 1.4%M/M in April, supported by positive developments in the autos sector. Nevertheless, given the weakness in March, this still left core orders still some 4% below the Q1 average.

Today’s release also reported a second successive decline in manufacturing turnover in April, down 1.1%M/M, suggesting downside risks to tomorrow’s industrial production release, for which the Bloomberg survey consensus forecasts a modest increase of 0.6%M/M following the drop of 3.4%M/M in March.

Looking ahead, the ECB will also study the findings of its own consumer expectations survey, which will provide an update on inflation expectations in April.

BRC retail sales monitor flags weakness in UK spending in May as high price continue to erode purchasing power
The BRC retail sales monitor published overnight broadly tallied with the findings from the CBI’s distributive trades survey to suggest that conditions remained challenging on the High Street in May. According to the BRC, retail sales growth slowed to its lowest in seven months, by 1.2ppt to 3.9%Y/Y, while like-for-like sales eased to 3.7%Y/Y. Boosted by the additional bank holiday, the value of food sales remained relatively strong in May at 9.6%3M/Y. But when adjusting for food inflation – which measured by the BRC shop price survey stood at 15.4%Y/Y in May – food sales were down compared with a year earlier. Meanwhile, growth in discretionary spending (0.7%3M/Y in nominal terms) continued to fall as households purchasing power continued to be eroded by high prices. 

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