Retailers warn of dismal spending; sales tax hike seen stifling demand

posted on October 13, 2015

Do not believe in official statistics, Japanese retailers seem to be saying, as they cut earnings forecasts and warn of lackluster consumer spending, a key growth engine for Japan at a time when exports and factory output are stalling.

If you go by the larger-than-expected 2.9 percent gain in household spending in August — the first year-on-year rise in three months — then consumption looks like it is finally alive and well again, after a sales tax hike last year stifled the economy.

But profits of retailers suggest the spending data, which have a small sample size, have not captured the full picture. Restrained household consumption raises the stakes for a central bank policy meeting on Oct. 30, and for the government’s plan to flesh out new economic policies before the year-end.

“Consumer spending has ground to a halt,” said Noritoshi Murata, president of Seven & I Holdings. “There are a lot of concerns about the global economy and not many positives for consumption. Weak spending could continue into the second half of the fiscal year.”

Seven & I, which operates the nation’s ubiquitous 7-Eleven convenience stores, on Oct. 8 trimmed its full-year profit forecast by 1.6 percent to ¥367 billion and cut its revenue forecast by 3.9 percent to ¥6.15 trillion, triggering a fall in its shares in Tokyo.

The main problem is wages are not rising fast enough to keep pace with rising food prices, and consumers are starting to cut back on other goods.

Real wages, adjusted for inflation, rose 0.5 percent in July from a year earlier. That was the first gain in 27 months. But wage growth subsequently slowed to 0.2 percent in August and summer bonuses fell from last year, government data show.

Another problem is more and more workers are getting stuck in jobs with low pay. Part-time and irregular workers comprised a record 37.4 percent of the workforce last year, according to the National Tax Bureau.

source by newsonjapan
Next bit of japanflyness