Retail Sales in Japan Decline in May. Does This Mean a Decline in Second Quarter Total Household Spending?

The latest report on retail sales in Japan suggests that the rise in household consumption in the first quarter Gross Domestic Product may not be sustained in the second quarter. May retail sales were -2.47% below sales of a year ago and April sales were almost 1% below year ago sales. In the first quarter of this year retail sales averaged 0.22% above the average for the first quarter of 2003.

It is important to remember, however, that retail sales are volatile and they are probably affected much more than total consumption by deflation. In the comparison between retail sales and household expenditures in current yen, such expenditures as household maintenance, education, and health, are much less likely to be affected by deflation than items such as food and clothing that make up much of the retail sales series. Chart 2 shows retail sales as a percentage of total household expenditures. Over the past 5 years, the ratio has declined from about 51% to 46%. Thus a decline in retail sales need not portend a similar decline in total consumption.