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Japan Service Demand Falls on Department Store Sales (Update5)

Japan Service Demand Falls on Department Store Sales

May 24 (Bloomberg) -- Japan's services industry shrank more than expected in March as shoppers spent less at department stores, raising concern that a revival in consumer spending in the world's second-largest economy may falter.

The tertiary index, a gauge of demand for services such as retailing, banking and real estate that make up about 60 percent of the economy, fell 1 percent from a month earlier, seasonally adjusted, the Ministry of Economy, Trade and Industry said today in Tokyo. For the first quarter, the index rose 1.4 percent from the previous three months.

Consumer spending rose for the first time in a year in the first quarter, fueling an unexpectedly rapid 5.3 percent annual pace of growth and helping Japan cement a recovery from last year's recession. The pace of personal spending probably won't be maintained in the second quarter, said Lim Su Sian.

``The recovery in consumption is going to be a very gradual one, and that's what will keep services in a very mild uptrend rather than anything quick,'' said Lim, an economist at IDEAGlobal in Singapore.

The median estimate of 31 economists in a Bloomberg survey was for a 0.4 percent decline in the tertiary index from the previous month. The index rose 1.9% from a year earlier in March.

Retail and wholesale trade, which account for a quarter of the index, fell 2.9 percent in March from February. Personal services, which include entertainment, beauty parlors and hairdressers, dropped 0.7 percent. Real estate fell 1.1 percent.

Sales at Japanese department stores fell for a sixth month in seven in March as unseasonably cold weather curbed sales of clothing, the Japan Department Store Association said on April 25.

Consumer Finance

Takashimaya Co., Japan's largest department store, said on May 2 that sales dropped 1.5 percent in April from a year earlier, after also falling in March.

Supermarket sales fell 2.3 percent in April from a year earlier to 1.161 trillion yen, the Japan Chain Store Association in Tokyo said today.

Executives at consumer finance companies including Promise Co., Japan's third largest, aren't convinced Japan's economic recovery has spurred personal spending to a sustainable level.

``The recovery in the economy hasn't spread to individuals,'' Promise President Hiroki Jinnai said April 25. ``We can't accelerate our lending just yet.''

Still, the Japanese government is becoming increasingly optimistic about the outlook.

``The issue in the Japanese economy was that personal consumption wasn't growing, but recently it's been getting better,'' Japan's Finance Minister Sadakazu Tanigaki told reporters on May 3.

Winter Bonuses

Wages rose in three of the past five months, suggesting a nine-year slide may end. Employers raised winter bonuses for the first time in eight years in 2004, by 2.7 percent.

``Once we see a more dynamic income environment, that will help an acceleration in consumption for both goods and services,'' said Glenn Maguire, chief economist for Asia at Societe Generale in Hong Kong.

Consumers accounted for more than half of Japan's economic growth in the first three month of this year.

Spending was spurred by the gain in winter bonuses, Societe Generale's Maguire said. Consumers also returned to stores after earthquakes and typhoons kept them away in the fourth quarter.

Overseas travel is on the rise. Japan Airlines Corp. and All Nippon Airways Co., the nation's two largest carriers, said reservations for overseas travel increased during the country's Golden Week holiday in early May.

The number of passengers who booked overseas trips for Japan Airlines' flights between April 28 and May 8 rose 6.5 percent to 212,479 from a year earlier, the carrier said. All Nippon said international reservations gained 6.7 percent to a record 127,113 in the same period.

Spending by businesses may bolster demand for services. Companies are spending more on advertisements, fueling profit at agencies such as Dentsu Inc., Japan's largest.

Advertising sales rose 8.3 percent in March from a year earlier, after a 5.2 percent increase in February, the trade ministry reported on May 20.

Dentsu expects net income to jump 12 percent to 30.7 billion yen ($284 million) in the year to March as the economy recovers, the company said on May 17.

To contact the reporter on this story:
Lindsay Whipp in Tokyo at [e-mail]


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