Japan’s household survey reports surprise lift in spending

Chris Scicluna

Equity markets mostly little changed as investors await US payrolls report
A new record high for the services ISM index, a thumping 978k lift in the ADP measure of private payrolls and a sub-400k reading on initial jobless claims supported a modest lift in Treasury yields on Thursday as investors looked ahead to today’s official payrolls data for May. The 10Y UST yield closed up 4bps at 1.62%, also providing a modest lift to the greenback. However, a decline in technology stocks weighed on major equity indices, with the Nasdaq declining 1.0% and the S&P500 closing down 0.4%.

Against that background, and with US equity futures steady since Wall St closed, equity markets in the Asia-Pacific region began the day on the back foot and many have closed down for the day. However, in Japan, the TOPIX was broadly steady at the previous day’s six-week high, with MIC’s household survey pointing to surprising resilience in household spending during April. In China, the CSI300 is up about 0.3% after President Biden signed an executive order amending the ban on US investments in Chinese linked to the military and surveillance industries. And Australia’s ASX200 increased 0.5% as new housing loans registered a new record high in April. Meanwhile, the yield on the November 2024 AGCB increased 4bps to 0.32% after a respected local bank economist said that he no longer expected the RBA to roll its 0.1% 3Y bond yield target to that bond (from the April 2024 bond) when it reviews policy settings next month.

Japan’s household survey reports surprising lift in spending in April
A reasonably busy week for data in Japan concluded today with the MIC releasing its monthly survey of household spending and incomes for April. According to the survey, real household spending increased a very modest but nonetheless surprising 0.1%M/M. And so with spending having declined sharply last year at the onset of the pandemic, annual growth more than doubled to 13.0%Y/Y – well above the consensus estimate of 8.7%Y/Y. The measure of core spending, which excludes spending on volatile components such as housing and autos, was not quite as resilient, declining 0.6%M/M in April but still rising 11.1%Y/Y. Core spending was more than 2% lower than in April 2019, however. In the detail, growth was led by a further 18.6%M/M lift in spending on transport and communication, whereas spending on culture and recreation fell 5.4%M/M and spending on education fell 11%M/M. The survey’s measure of workers’ real disposable incomes increased 3.2%Y/Y in April, compared with the 0.9%Y/Y decline reported in March. While base effects boosted growth, this outcome is also somewhat surprising in light of the decline in employment indicated by the MIC’s household survey.

Today’s report contrasts sharply with the soggy retail sales report released earlier this week (retail spending fell 4.5%M/M in April) and we expect that Monday’s release of the BoJ’s Consumption Activity Index – a much superior indicator of the national accounts measure of private consumption – will likely also point to a decline in spending following a 1.3%M/M lift in March. Fortunately, while Q2 is shaping up to be another soft quarter for the services sector, this week’s news of a 2.5%M/M lift in industrial production in April – with the quarter shaping up for an increase of around 2½%Q/Q if firms’ forecasts for the following two months are correct – suggests that the goods sector will again help to moderate the contraction in overall activity.

UK car registrations still well down on pre-pandemic norm in May; construction PMIs to signal ongoing firm growth in the sector
Data to be released later this morning by the UK’s Society of Motor Manufacturers and Traders (SMMT) will reportedly show a leap of about 670%Y/Y in May. That, of course, will principally reflect the collapse a year ago when showrooms were shut during the first wave of pandemic. And registrations of about 156k will still be about 15% below the level in the same month two years earlier, and well below the May average over the prior decade. The May construction PMIs due later this morning will remain consistent with solid growth in the sector.

Euro area retail sales data to be weak on lockdowns; construction PMIs should point to modest growth
Euro area retail sales data for April due later this morning will post a drop of 1½%M/M or more due principally to the renewed lockdowns in Germany and France. But the construction PMIs should be consistent with modest growth in the sector in the euro area last month, led by Italy.

May employment report and April factory orders ahead in the US today
The focus in the US today will be clearly on the employment report for May. Following a disappointing 266k gain in April, Daiwa America Chief Economist Mike Moran is forecasting a more substantial 650k lift in non-farm payrolls and a 0.2ppt decline in the unemployment rate to a new post-pandemic low of 5.9%. The April factory orders report is also due today, and will likely be weighed upon by the already reported decline in durable goods orders (the latter reflecting a slump in volatile transportation orders).

Aussie home lending rises to new record high in April
Today the ABS reported that the value of new housing loan approvals increased a further 3.7%M/M in April to a new record high, lifting annual growth to a whopping 68.2%Y/Y – a rate only slightly flattered by base effects associated with the onset of the pandemic. Approvals for investor loans increased 2.1%M/M and 63.0%Y/Y – continuing a recovery from what had been 20-year lows – while approvals for owner-occupier loans increased 4.3%M/M and 70.1%Y/Y. Approvals for personal fixed term loans also increased a strong 4.8%M/M and were up almost 58%Y/Y.

Kiwi building activity lifts strongly in Q1
This week’s Kiwi data flow concluded today with Statistics New Zealand releasing estimates of building work for Q1. Encouragingly, the data revealed a 3.7%Q/Q increase in the volume of work undertaken – slightly firmer than consensus expectations – following a 0.5%Q/Q contraction in Q4 that was 1.0ppt smaller than reported previously. With dwelling approvals at a record high of late, residential building increased a further 4.3%Q/Q to be up 17.1%Y/Y. Non-residential building increased 2.6%Q/Q but was still down 2.2%Y/Y.

Combined with other partial indicators released to date, including a sturdy 2.6%Q/Q lift in retail sales, today’s report adds to the likelihood that GDP avoided a second consecutive small pullback in Q1 following the 1.0%Q/Q decline in Q4 (albeit the latter following a 14%Q/Q rebound in Q3 that lifted activity back to pre-pandemic levels). Further indicators of activity will be released over the coming week with the Q1 national accounts to follow a week later.

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