Consumption continues to flounder as Spring wage rises disappoint

As recently as February, leading economists were doing their utmost to convince major Japanese companies to tow the government line and plough some of their recent profit gains back into wage increases. In the end company generosity turned out to be measly and most consumers are left increasingly doubtful of seeing any benefit from Abenomics.

Loudly voiced expectations of wage increases at this year’s Spring wage negotiations between company unions and their employers have been dashed for yet another year. Yes, many companies did allow increases higher than in recent years, but in real terms the overall level of growth was tiny – still well below the rate of inflation. At least companies are no longer clawing back wages through lower bonuses and wage cuts as they were up to four or five years ago.

Many economists hoped that Toyota would finally bow to PM Abe’s calls to lead the way out of long-term wage stagnation. The world’s leading car maker, which doubled net profit last year to a record ¥1.8 trillion thanks to Abe’s lower Yen, returned the favour with a miserly offering of ¥4,000 extra a month for each of its 63,000 strong in-house union.

Toyota’s offer was an almost insulting 1.1% average increase, against a union request of 3.3%, a figure designed to at least compensate for the hike in prices caused by the consumption tax rise last year. The fact that Toyota’s concession was still higher than some other major companies, with many in the retail trade not even stretching to a 1% increase, only makes corporate Japan as a whole look even more miserly.

Not surprisingly, expenditure continues to fall. February saw overall expenditure for two or more person households decline by 2.9%, the eleventh straight month of decline, although a slight improvement on the 3.4% and 5.1% falls in December and January. Although the change in expenditure is expected to flatten out in April, sales drops in key categories continue to worry economists.

Consumer durable sales were down 37.2% in February, with furniture down 36.3%, accessory spending down 47.1%, and watch purchases down 64.9%. Granted, most of these are due to unusually high sales the year before, but not all will bounce back. In contrast household items such as washing powder and toiletries declined just 8.3% compared to last year, with food sales down 0.6%.

Much more worrying is the 0.7% fall in income for working households to ¥488,519, the seventeenth straight month of decline in real terms. It is this continued decline in real incomes that gives pessimists fuel for their argument that a consumer recovery, let alone inflation, remain unlikely.

The government is outwardly optimistic, and it is certainly true that some retailers are attracting increasing numbers of shoppers, but, apart from department stores benefiting from the increasing wealth of the wealthy, this is testament to the best retailers’ ability to suck trade from their many languishing competitors rather than an overall surge in consumer spending.

Although the last policy announcement offered yet more profit to major corporations in the shape of cuts in corporate taxes, companies’ systematic refusal to pass this on to needy employees means that it may also consider new penalties for firms that continue to hold on to too much cash – even a year ago, firms were growing cash reserves at around 7% a year with more than ¥222 trillion already sitting around in bank corporate accounts. Many hope this is a dam of problems that may never burst, but there is still no real sign of the much needed solution: income growth.