Japanese consumption steady in December

Chris Scicluna
Emily Nicol

Japanese consumption steady in December but saw solid growth in Q4
After last week’s retail sales numbers fell short of expectations, today’s BoJ consumption activity index also suggested that spending momentum weakened towards the end of last year, with the headline consumption index moving sideways in December. Nevertheless, this still left consumption activity up 4.4%Q/Q in Q4, suggesting a solid contribution from household expenditure to GDP growth in the final quarter of last year. Within the detail, the slowdown in December reflected a drop in spending on non-durable goods (-3.2%M/M). But spending on durable items rose for the third consecutive month (+4.9%M/M) to a six-month high, while expenditure on services also maintained an upwards trend, with a near-2%M/M increase in December leaving it at a post-pandemic high and up more than 8%Q/Q in Q4. Admittedly, spending on services was still almost 7% lower than the pre-pandemic level. While spending on durable items was 1½% higher than the pre-pandemic benchmark it still remained more than 10% lower than the pre-consumption hike peak in September 2019. And given the surge in coronavirus cases since the start of the year, renewed pandemic-related restrictions and a slump in consumer confidence, household spending seems bound to have slipped back in January.

Certainly, the Cabinet Office’s latest economy watchers survey (tomorrow) seems bound to suggest a notable deterioration in conditions at the start of the year, likely reflecting a slump in household-related demand. Tomorrow will also bring the MIC’s household spending numbers for December, as well as labour earnings figures from the same month, which are expected to report only modest growth in total wages and therefore still negative real wage growth. Meanwhile, ahead of Friday’s national holiday, January goods PPI numbers (Thursday) are expected to report a further slight moderation in the pace of annual growth to 8.2%Y/Y, 1ppt lower than November’s peak.

German industrial production ended 2021 on a soft note, weighed by a sharp fall in construction while manufacturing maintained very gradual recovery on increased auto output
German industrial production ended last year on a soft note falling 0.3%M/M in December following an upwardly revised increase of 0.3%M/M in November to be down 4.1%Y/Y and 6.9% below the pre-pandemic level in February 2020. The weakness was due to construction, which contracted a marked 7.3%M/M, the most in eleven months to the lowest level since 2018. Energy production also fell (-0.7%M/M). But manufacturing output fared better, rising for a third successive month and by a respectable 1.2%M/M – albeit still 6.6% below the pre-pandemic level – to be up 1.7%Q/Q in Q4 having declined in each of the prior three quarters. Within the detail, production of capital goods rose 2.5%M/M to be up 4.3%Q/Q in Q4. That reflected further strong growth in motor vehicle output, up 12.1%M/M and 13.2%Q/Q but still some 21.3% below the February 2020 level. But machinery and equipment was down 3.7%M/M and 2.5%Q/Q and almost 8% below the pre-pandemic level. Among other items, production of consumer durables rose 4.5%M/M in December to be up 0.9%Q/Q in Q4 and back above the February 2020 benchmark. But while output of intermediate items rose 0.6%M/M at the end of the year, it was still down 0.4%Q/Q in the fourth quarter and 2.2% below the pre-pandemic level. Surveys point to continued growth at the start of the year as supply bottlenecks ease modestly and firms make gradual in-roads into order backlogs and seek to replenish inventories.

Lagarde to speak publicly today, with more ECB-speak to come but no more top-tier euro area data
After last week’s hawkish ECB pivot in the wake of the big upside surprise to the flash estimate of euro area inflation in January, most notable in the coming week will be the commentary from various Governing Council members. President Lagarde will speak to the European Parliament this afternoon while ECB Chief Economist Lane and Vice President Guindos will speak publicly on Thursday. The coming week is set to be much quieter on the euro area economic data front, however, with top-tier releases thin on the ground. The euro area’s Sentix investor confidence survey results for February will be published this morning and are likely to suggest unease against the backdrop of high inflation and bond market volatility. Spanish IP data for December come tomorrow along with French goods trade numbers for the same month, with the equivalent German figures due Wednesday. The Bank of France should also publish its business survey results for January on Wednesday. While manufacturing production likely held up at the start of the year, the survey is likely to point to a hit to activity in consumer-facing sectors due to the pandemic suggestive of a decline in GDP as a whole.

UK Q4 GDP data to confirm growth close to 1%Q/Q but also a drop in activity in December
Following last week’s BoE rate hike and signal of further tightening to come, Governor Bailey will speak publicly at the CityUK annual dinner on Thursday evening while Pill will speak publicly on the monetary policy outlook the previous day. Data-wise, Friday will bring the only top-tier release of the week in the shape of the first Q4 GDP estimate alongside the monthly deluge of output and trade numbers for December. After rising 1.1%Q/Q in Q3, GDP growth looks set to have slowed slightly to 0.9%Q/Q in Q4. But this will mask a more significant slowing in activity towards the end of the quarter – particularly in consumer-facing services – amid a rise in coronavirus infections in December and reintroduction of certain restrictions. Indeed, we forecast GDP to have contracted by about 1%M/M in December, with weakness among services, manufacturing and construction alike, with production still impeded by supply bottlenecks. Beyond the GDP data, tomorrow will bring the BRC’s retail sales monitor for January, while Thursday sees the release of the RICS house price survey and REC/KPMG jobs report for the same month.

After a quiet start to the week for US data, Thursday’s CPI report to be the highlight, with inflation set to rise to a fresh 40-year high
Following last week’s strong employment report, the main focus in the US this week will be Thursday’s CPI release. Having eased slightly in December, energy prices are expected to have picked up in January, while food prices appear to have maintained a firm upwards trajectory. And while Omicron could limit price pressures in some pandemic-sensitive areas in January (e.g. airfares, apparel), strong demand and higher costs from supply disruptions are likely to persist. So, Daiwa America’s Mike Moran expects consumer prices to have risen a further 0.5%M/M, only marginally softer than the average over the past year, to leave the annual rate of inflation up a further 0.3ppt to 7.3%Y/Y, the highest for forty years. Ahead of this, the week will bring December’s full trade report (tomorrow), which will confirm a notable widening in the goods trade deficit to a record high, while services trade is likely to have been impacted by the latest pandemic wave. Tomorrow will also bring the NFIB small business survey for January, while Friday will see the release of the flash University of Michigan’s consumer sentiment survey for February, with the spread of Omicron, elevated inflation and marked volatility in equity markets likely to have been a further drag on confidence this month. In terms of Fed speak, Cleveland President Mester will discuss the economic and policy outlook on Wednesday, while Richmond President Barkin will speak on Friday about forecasting and policy amid pandemic uncertainty. 

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