Japan's Retail Sales Turn Choppy and Fall in September

Even Japan’s three-month growth rate series shows exceptionally choppy retail sales performance (see Chart). Year-over-year sales creep higher. Six-month trends show robust gains. The truth of trend lies buried somewhere in these very different statistics.

While sales have fallen in September leading to some concern about the impact on quarterly GDP, total sales and sales by economic group for the most part show ongoing gains.

In real terms, the trends look a lot as they do in nominal terms but pitched at a lower rate of growth. Over 12 months, retail sales gains are at 1%; they have been stronger than 1% only twice over the past nine months in terms of their year-on year growth. Over six months, sales appear strong mostly because six months ago sales were exceptionally weak. The six-month growth rate is calculated on a very favorable basis this month.

While retail sales are up at a 2.4% pace in the just-completed quarter (see quarter-to-date in the table), they also are lower at a -0.3% annual rate in real terms because the CPI flared in the quarter.

Still, real retail sales trends in Japan are as hard to pin down as their nominal counterparts. Three-month real sales growth is at +0.1%, compared to +4.8% in August and to -5.5% in July. Japan’s retail sector has seen in a state of turmoil. And while there have been typhoons and weather events, the variability in retail sales for the nation as whole has simply been unusual. The year-on-year trend for real sales is steady but positive at a low rate of growth. Japan is probably still stuck in that low growth profile. And there is little doubt that the profile will be threatened by the ongoing trade wars since Japan trades most heavily with China and second most heavily with the U.S. Growth is in gear but nothing is assured.

Globally, growth is challenged. Mario Draghi is downplaying the European slowdown. China is fighting off slowdown effects dipping deeply in the well of debt as U.S. tariffs threaten. U.S. inflation after ‘flaring’ back to target is on the verge of undershooting again (so much for allowing overshooting). Some Fed policy officials think U.S. growth is becoming more durable. We will see how that plays out as the U.S. economy gets farther from the impact of extra spending to rebuild after hurricane damage and as the fiscal boost diminishes. Meanwhile, globally policy makers are taking growth for granted despite lack of inflation pressure and the presence of a broad-based slowdown. Should this slowdown and the threats to growth be taken more seriously? We are on the verge of finding out.