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Economy in Brief

Hints of Improvement in Japanese Retailing as May Sales Show Gain from Year-Ago
by Carol Stone June 27, 2007

We fret over the Japanese economy: is it improving or not? Is it finally breaking out of 1990s stagnation enough so that deflation will go away? We're never quite sure. So when one figure is favorable, even by a little bit, we tend to get excited about it.

Today it is retail sales. In May, consumer purchases of goods in stores rose 0.1% from a year ago. The Bloomberg news service reports that of the 23 economists in its Japanese forecast survey, only 1 predicted a positive outcome for this indicator. It was the first 12-month increase since last September.

We thought perhaps rising fuel prices had been the main mover. This had certainly been the case from about mid-2004 through mid-2006. But fuel purchases have slowed recently and for May they actually edged down from May 2006, by 0.4%. Excluding fuel, retail sales were still up 0.1%.

The largest single gain was in food and beverages, which rose 1.7%. Other categories of stores -- motor vehicle dealers, clothing, household durable goods and general merchandise -- all still saw year-on-year decreases. So it's the "all other" segment that helped push up the total: books, sporting goods, personal care items. These increased 1.3% over the year ago.

The narrow scope of the May sales increase might suggest that it will turn out to be fleeting. However, the Ministry of Economy, Trade and Industry (METI) also calculates an index, which they seasonally adjust. As shown in the table below, this index rose 0.5% in May from April, which had been up 0.3% from March. By this measure, general merchandise store sales were up in May, as were clothing stores and "other", suggesting that recent uptrends have been broadening, giving a more optimistic view going forward. Thus, Japanese consumers, who face an increasing positive employment situation and the lowest unemployment since early 1998, might be starting to spend more freely. The threads of evidence from this retail sales report are thin, but they look to be braiding a stronger rope.

Monthly Averages
JAPAN: Retail Sales May 2007 Apr 2007 Mar 2007 Year Ago
2006 2005 2004
Total (Bil.¥) 11,012 11,177 12,077 11,005 11,271 11,255 11,143
  % Change 0.5* 0.3* -1.3* 0.1 0.2 1.0 1.0
ex Fuel       0.1 -0.6 -0.2 0.4
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