Japan's household spending, buffeted by reduced overtime hours and stagnant wages, fell for a second month in March and the economy lost jobs, suggesting consumers will not help sustain a recovery from last year's recession.

Spending by households headed by a salaried worker slid by 1.1 per cent from February, seasonally adjusted, to average 353,639 yen (US$3,342), the statistics bureau said yesterday in Tokyo. The economy shed 270,000 jobs and the workforce shrank by 430,000, pushing the jobless rate down to 4.5 per cent from 4.7 per cent.

Exporters are cutting overtime and limiting wage increases as production slows, leaving consumers with less to spend at retailers including Takashimaya Co.

Rising metals and oil product costs may further squeeze corporate profits, curbing growth as Japan emerges from its fourth recession since 1991, said Hiromichi Shirakawa, chief economist at UBS Securities Japan Ltd.

"If companies are under pressure in terms of profitability they will likely decrease employment and wages," said Shirakawa, a former Bank of Japan official. "It's of course quite difficult for us to anticipate robust and strong growth in Japan."

Earnings outlook

Almost 60 per cent of company presidents or chairmen in Japan said increases in the cost of raw materials are damaging earnings prospects, according to a Nihon Keizai Shimbun Inc survey published on April 23.

The Bank of Japan's Tankan survey of business sentiment showed that large manufacturers expect pretax profit will grow by 1.1 per cent in the business year started April 1, compared to 25 per cent last year, reflecting concern that higher commodity prices will increase costs and hurt consumer spending.

Consumer prices fell in March, another report showed yesterday, marking a seventh year of deflation in Japan and making it less likely the central bank will raise key interest rates from almost zero. Core prices, which exclude fresh food, fell by 0.3 per cent from a year earlier, the government's statistics bureau said.

Japan slipped into recession last year as export growth slowed and consumer spending stalled. The economy recovered in the fourth quarter, growing at a 0.5 per cent annual pace. Consumer spending fell in the second half of 2004.

Particularly difficult

"At this time sales have been particularly difficult," Takashimaya's president, Koji Suzuki, said in an interview. "Women's, men's and children's clothing simply isn't selling."

Osaka-based Takashimaya, Japan's largest department store, said sales fell by 2.3 per cent to 275.7 billion yen in the three months ended February 28.

Spending for the first quarter as a whole rose from the previous three months, when typhoons and earthquakes kept shoppers at home. Spending in the quarter to March 31 rose by 3.2 per cent, the first gain in three quarters and the biggest since 1997.

Winter bonuses in Japan rose for the first time in eight years in 2004, increasing by 2.7 per cent to 430,278 yen, the Ministry of Health, Labour and Welfare said on March 30.

Wages have risen in three of four months through February after sliding on an annual basis for nine years. The increases may not yet be enough to stoke consumer spending, said Lim Su Sian, an economist at IDEAGlobal in Singapore.

"I don't see the personal consumption side improving dramatically for a while," said Lim. "I'm hoping for sustainable wage improvements by the end of this year."

March's decline was partly because of less spending on food, which fell by 2.2 per cent, and education and recreation spending, which dropped 4.1 per cent. Other miscellaneous expenses dropped by 19 per cent, the report said.

Japan's economy will grow by 0.8 per cent this year, compared to a 3.6 per cent expansion in the United States, the International Monetary Fund said this month. It lowered its Japan outlook from a September forecast for 2.3 per cent growth because of slowing exports.

Industrial production dropped by 2.3 per cent in February, seasonally adjusted, and has declined for four of the past six months. Overtime hours at manufacturers have also fallen for four of six months. (US$1=106 yen)

(China Daily 04/27/2005 page12)