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Japan Household Spending Falls; Unemployment Rises (Update3)

Japan Household Spending Falls; Unemployment Rises

March 29 (Bloomberg) -- Japan's household spending fell more than expected in February and unemployment rose, suggesting the world's second-largest economy may not be able to rely on consumers to drive a recovery from recession.

Spending by households headed by a salaried worker dropped 4.1 percent from January, seasonally adjusted, the statistics bureau said today in Tokyo. Unemployment rose to 4.7 percent from a six-year low of 4.5 percent and retail sales fell 2.7 percent, the biggest drop in more than a year, separate reports showed.

Consumer spending, which makes up half the economy, dropped for two quarters last year, curbing sales at department stores including Isetan Co. Japanese companies may curb the pace of wage increases as they seek to protect profits from higher costs of oil and raw materials.

``We can't expect consumer spending to become the engine to pull the Japanese economy off its plateau,'' said Naoki Iizuka, chief economist at Dai-Ichi Life Research Institute in Tokyo. Dai- Ichi Mutual Life Insurance Co., the nation's second-largest insurer by assets, has the equivalent of $93 billion in Japanese bonds.

The Nikkei 225 Stock Average fell 0.6 percent to 11,720.77 at 11 a.m. in Tokyo, led by Ito-Yokado Co. and Nippon Telegraph & Telephone Corp.

Household spending had been expected to drop 2.9 percent, according to the median of four forecasts in a Bloomberg survey of economists. Unemployment was expected to be unchanged, according to the median of 32 forecasts.

Recession Ends

Japan slipped into recession in the second quarter of last year as consumer spending sagged and exports slowed, after growing at a 6 percent annual pace in the first three months. The economy recovered in the fourth quarter, expanding at a 0.5 percent pace, as manufacturers replenished stockpiles.

Isetan, Japan's fourth-biggest department store, lowered its net income forecast 31 percent to 11 billion yen for the year ending March 31, the company said on March 25.

``Consumer spending has stayed stagnant,'' Norio Yamaguchi, senior vice president of Ajinomoto Co., Japan's largest food company, told reporters on March 23. ``Companies have to see if they can come up with the products that can spur spending.''

Wages are showing signs of improving after a nine-year slide. Wages rose 0.4 percent in January, the second gain in three months. Further increases may held back as companies seek to cut costs.

Job Growth

Matsushita Electric Industrial Co., the world's largest consumer electronics maker by sales, said more costly materials cut its profit by 12 billion yen, or a third of the total, in the quarter ended Dec. 31.

Japan's economy lost 280,000 jobs in February, and the workforce fell by 190,000, today's unemployment report showed. The economy added 470,000 jobs in January, the most since 1992. Over the two-month period, the economy added 190,000 jobs.

``Labor conditions are basically improving,'' Chief Cabinet Secretary Hiroyuki Hosoda said today at a regular press conference in Tokyo. ``There's no reason to be too concerned.''

The gain in the unemployment rate and the loss of jobs in February showed by today's report may have been caused by volatility in the sample used for the survey, said Dai-Ichi's Iizuka.

Eishi Yokoyama, a Tokyo-based economist at AIG Global investment Corp., predicted spending will rise in the three months ended March 31 as the job market improves.

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Japan's companies placed 3.3 percent more job advertisements in February compared with a year earlier, according to the Association of Job Journals of Japan said on March 24.

Toyota Motor Corp. and other automakers plan to increase bonuses in the fiscal year beginning April 1 as they reward employees for their record earnings.

Toyota, Japan's largest automaker, will raise bonuses to an average of 2.44 million yen, the sixth straight year of increases, the company said on March 16. Toyota also said it will raise monthly salaries by 6,900 yen on average during the same period.

``It looks as if the ability of companies to squeeze wage incomes is diminishing, and from that point of view you would expect consumption to recover,'' said Richard Jerram, chief economist at Macquarie Securities Ltd. in Tokyo.

Government plans to raise personal income taxes are clouding the outlook. Plans to cancel tax rebates next year would add 12,083 yen to monthly bills at an annual cost of 3 trillion yen to taxpayers.


LINK: http://www.bloomberg.com/apps/news?pid=10000087&sid=aox4T9qbhiBg&refer=top_world_news