Japan Economy: Wages and Consumer Spending

 https://mainichi.jp/english/articles/20210605/p2g/00m/0na/016000c

Article:

TOKYO (Kyodo) -- Japan's wage growth has slowed to levels last seen in the aftermath of the 2008 financial crisis as companies have taken a hit from the coronavirus pandemic.

Major companies have agreed on an average pay hike of 1.82 percent in this year's annual spring wage negotiations, falling below 2 percent for the time since 2013, according to data released by the Japan Business Federation. The final results are due out in July.

Tepid wage growth is seen as a drag on consumption, which makes up the bulk of the economy. This time, economists are keeping an eye on the role that "forced savings," or money that households have been forced to save due to pandemic-caused restrictions, will play.

Ideas:

Its not surprising that the average pay hike is only 1.82 with the pandemic still strong and company sales or earning not where they should be or expected.

Tepid, weak, or low wage growth can easily be seen as a challenge for consumer spending.

Employees are consumers, and the more they feel good about their wages the more they might use in the economy.

With the right balance, some will be used on the the basics for any family or individual, some will be saved and some depending on how much is left, called disposable income, will be used on other things in the economy.

Its the disposable income that is the most challenging, and the basics are taken care of first, then, maybe saving and the extra.

And then there is the idea of how consumes feel about the future. If they good about the future and their jobs, they might use more of it in the economy. If not they might save more of it and wait until they do feel good about what is happening. Of course this might be the "forced savings" as the future might not look so good to they think they need to save more instead of using it in the economy.

Article:

"Wage growth is seen falling below 2 percent and this will add downward pressure on consumption," said Naoko Ogata, senior economist at Japan Research Institute.

"Under normal times, people tend to cut back on spending as income falls," Ogata said. "What's different this time is that they have money at their disposal, but they can't spend it amid the pandemic."

She estimates that the pandemic has forced Japanese households to save about 13 trillion yen ($118 billion), or roughly 4 percent of Japan's annual consumption.

Ideas:

Yes, most likely as employees, workers, consumers see or have less disposable income they might decide to spend less.

With all due respect,  I suggest that not everyone has money at their disposal. There are still large groups or even sectors not doing so good. So the idea that everyone has the same amount of disposable to use might be exactly correct.

But of course there is a lot of pent-up demand, meaning a lot of things people want to do things such as travel and do things but the pandemic as limited those activities at the moment.

So yes, the savings rate most likely has gone up for certain groups during the pandemic, but what about for the groups or sectors in the services area, where the pandemic has hit the hardest. 

How much have these groups been able save when they might have have lost their jobs, had their wages cut, even lost their businesses.

All sectors are not affected the same in the economy, and as such, some might be fine in the pandemic while some are not doing so good.

Article:

Such savings increased as people canceled vacation plans or leisure activities due to the COVID-19 crisis.

The Bank of Japan, which counts on a virtuous cycle of wage growth spurring private consumption, puts such forced savings at 20 trillion yen last year.

Some of the disposable income that could have been spent on leisure or other activities had it not been for the pandemic was apparently spent on other items like durable goods.

Ideas:

So yes, while some of the disposable income might have been saved some of it might have been used in other parts of the economy, such as spending on durable goods.

As has been reported in other articles some in the upper income groups have used their extra disposable income to buy foreign cars, instead of using it to take trips to places like Europe.

Pent up demand or even pent up activities means people can only sustain not doing something for so long, so they are going to find other things to spend their money on, such as things maybe they normally wouldn't buy and or things they hadn't really wanted or considered to buy at this time, but felt now might be the best time to buy it.

Article:

As people spend more time at home, sales of durable goods have been robust, lifting shipments of white goods in fiscal 2020 to 2.61 trillion yen, its highest in a quarter of a century, according to data by the Japan Electrical Manufacturers' Association.

Still, economists say uncertainty over the outlook has largely kept many households frugal.

The pandemic has boosted the use of e-commerce and "group buying," or purchasing items at a discount with multiple people on social media.

Ideas:

Its natural that sales of durable good and other items used in homes have increased. Even though it might be known yet, the sales of air conditioners might be a big seller this summer as the the pandemic continues on with another hot summer ahead.

Add the Tokyo Olympics and there might be more sales of large screen TV's at the same time.

And of course, as people might spend less time in Yodobashi Camera or maybe just browse the big screen TV's as I've done then they might order it online or just order it there and have it delivered to their home.

And no doubt, as people/consumers are hesitant to go out as much they would begin to spend more online.

Even the idea of buying online from supermarkets for food has now become common or popular as some supermarkets have now increased their presence online to make sure they don't lose customers. Some have either started to use delivery services or provided their own delivery service.

It has even been reported that maybe 7/11 has begun delivery services for online purchases.

Article:

Beer topped the list of best-selling items in 2020, and a total of 190 people formed a group to buy sweet roasted chestnuts at around a 70 percent discount, according to the operator of the Kauche app.

With a third state of emergency in place over COVID-19, Japan's economy faces the risk of falling into a technical recession, two straight quarters of negative growth, in the April-June period.

Much depends on how fast the rollout of vaccines will proceed in Japan, which would unleash what economists call "pent-up" demand.

Ideas:

Large group purchases, or group buying, might a strategy for companies to make sure they can get a certain level of sales, even if they have to lose some in giving discounts.

And just maybe this was an innovation, like many innovations, that might have been created due to the pandemic or would have been created anyway over time.

There is no doubt, with the pandemic not going away anytime to soon, the Japanese economy is not where it should be.

As far as technical recession, it has to be remembered that an economy is very complex. There are always some parts of an economy that do better than other parts of an economy.

So a technical recession, in itself is not good, it doesn't mean the entire economy is doing bad, but at the same time, there are still sectors, such as the services sector area, especially those related to restaurants, hotels, airlines, tourism businesses that are not doing so good, and might not get back to some kind of normal for a long time.

The vaccine situation might be improving, which is good, but the new virus situation has just grown again, and as other article comments come later, the virus situation now is at an all time high in Tokyo.

Article:

As "COVID-19 subsides, households may withdraw some of their 'forced savings,' and this may push up private consumption," the BOJ said in its outlook report.

Ogata said the near-term impact of pent-up demand may be larger than that of slowing wage growth.

"Demand from people who think 'I want to do this when the COVID situation subsides' is strong," she said.

Ideas:

Not to get to ahead of this article, as it is being written a little later than published, the pandemic is not subsiding in Japan, in fact the opposite has happened. 

But it would be good if households started to use a little more of their forced savings in the economy.

Actually the two might go together or have kind of a synergy affect. Slow wage growth might increase pent up demand and as such lower consumer spending. But the opposite can happen too course. As wages begin to increase that might be an incentive for consumers to begin to spend more in the economy.,

But at the same time, eventually consumers might begin to "just be tired" of doing nothing, so to speak begin to spend anyways on thing they want. 

Human nature being human nature consumers want to be out and about. Pent up demand can only last so long before people/consumers just get tired of it and what to go out and do things which mostly likely require the spending of money.

Have a nice day and be safe!