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Consumer Spending Falls for Fourth Successive Year

July 10, 2000

A government survey has found that the average monthly expenditure of Japanese households in fiscal 1999 (April 1999 to March 2000) was 321,215 yen (3,059 U.S. dollars at 105 yen to the dollar), a decrease of 5,759 yen (55 dollars) from the previous year. Adjusted for inflation, this was a 1.2% drop in real terms and the fourth consecutive annual fall. Consumers' spirits seem to have improved somewhat from 1998, but not enough to keep lower incomes from leading to a fall in spending. One bright spot was that spending on computers and telecommunications products rose, a sign that the information technology revolution is trickling down to general consumers. On the other hand, families are cutting down drastically on food spending, a sign of shifting consumer values in an uncertain economic climate.

IT-Related Spending On the Up
Since the early 1990s, after the collapse of the bubble economy, consumer spending has been falling almost continuously, with just one annual rise in fiscal 1995. The Management and Coordination Agency's Family Income and Expenditure Survey, which gauges consumer spending trends, has now marked the first-ever four-year drop in the figure since a comparable survey was begun in 1964. At the height of Japan's financial instability in 1997, average household spending recorded a considerable fall of 2.1% in real terms, and it has remained in the downward trend ever since.

The area in which families cut back their spending most in fiscal 1999 was food. Spending on food dropped by 1.6% in real terms from the previous year, and this alone dragged down overall spending by 0.39%. People's desire to save grew stronger, reflecting a drop in incomes, and spending on clothing and education also fell.

Heading a boom in IT-related goods and services was a massive 31.1% increase from the previous year in spending on computers and dedicated word processors; spending on telephone use also rose 7.2%. Total spending in this area is relatively small, however, and such dramatic rises were not enough to halt the overall drop in consumer spending.

The consumption index--which is a true reflection of consumer spending because it excludes the effect on figures of a decline in the average number of people per household--fell by 1.2 points to 97.3 (fiscal 1995 is set at 100), the lowest level for the index since 1987. Average propensity to consume (as measured by spending as a proportion of income), which reveals the spending attitudes of salaried workers' households, improved to 71.7%, a 0.6-point rise from fiscal 1998, when financial insecurity was rife. The average real income of these households, however, fell by 2.5%, the biggest drop ever. This suggests that falling incomes are pushing down families' spending.

On a more positive note, real consumer spending remained level in the final quarter of fiscal 1999 (January to March 2000), a sign that the decline may be coming to an end.

Changes in Spending Priorities
Looking in detail at trends in spending on different goods and services reveals signs of changes in people's spending priorities.

Of the 10 main areas of total household spending in fiscal 1999, 5 showed a rise in expenditure: housing, utilities, health and welfare, transportation and telecommunications, and culture and leisure. All of these are essentials that would be difficult to cut back on. The 5 categories in which spending fell--food, furniture and household items, clothing, education, and other living expenditures (such as pocket money and social expenses)--were areas in which consumers had a relatively high level of discretion in deciding whether to spend.

Standing out among the areas that saw growth were expenditures on durable culture- and leisure-related goods, up by 20.5% from the previous year, and telecommunications, up 7.3%. This contrasts with the area that accounts for the most spending--food--in which every type of expenditure fell consistently. The days of Japanese people gorging themselves on luxury foods are long gone. The falls in this and other negative-growth areas were considerable, pushing down the overall spending figures.

Books and magazines with such titles as The Age of Eating Simply and Cutting Your Household Budget are selling well, and it appears that society as a whole is moving toward placing emphasis on saving and choosing more carefully how to spend its money.

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Trends in JapanCopyright (c) 2000 Japan Information Network. Edited by Japan Echo Inc. based on domestic Japanese news sources. Articles presented here are offered for reference purposes and do not necessarily represent the policy or views of the Japanese Government.