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MNI SOURCES: Japan GDP Calculation Change May Show Firmer Data

By Max Sato
     TOKYO (MNI) - Higher shares of supply-side information on private
consumption and business investment to be applied in the calculation of revised
GDP data for the July-September quarter, due Dec. 8, could show sluggish
consumption was somewhat firmer than previously estimated.
     This could lead to an upward revision to third quarter GDP data, which
originally posted a modest 0.3% rise on quarter, or an annualized 1.4%, as a
rebound in net exports offset a slump in consumer spending caused by bad
weather.
     The government has been studying ways to create a more accurate measure of
the demand side of consumer spending as household spending data rely on a small
sample base and the sample changes regularly.
     To improve its estimate of the gross domestic product, the Cabinet Office
will increase the weighting of supply-side data in the calculation of private
consumption and business investment in equipment, effective with revised (second
preliminary) GDP data for the July-September quarter due on Dec. 8.
     "The annual revision will also be applied to the revised GDP data but the
changes of the weighting (of demand- and supply-side information) will probably
have a bigger impact. We may see firmer consumption than previously estimated,"
a government official told MNI.
     The proportion of demand-side data vs. supply-side data used to calculate
private consumption will change to 31% vs. 69% in the new calculation from the
existing 53% vs. 47%. The proportion of these data for business investment in
equipment will also be altered, to 49% vs. 51% from the current 58% vs. 42%.
     The Cabinet Office has already announced plans for these changes. Within
days, it will follow up with a statement on what points to watch out for in the
new formula.
     "The BOJ believes using supply-side data alone is the best mix but
supply-side data are not always stronger than demand-side data, so it is better
to look at both sets of indicators," the government official said.
     "Among supply-side data, the index of industrial production has been
showing large fluctuations month to month since the collapse of Lehman Brothers
caused a huge negative swing in statistics, showing stronger or weaker figures
than what manufacturing activity really is."
     Still, existing supply-side data reinforces the view of weak consumption in
the third quarter.
     The BOJ's supply-side Consumption Activity Index fell a real 0.3% on a
seasonally adjusted basis in September, the second straight drop after falling
0.9% in August. The index in the July-September period was down 0.6% on quarter
following gains of 0.9% in the second quarter and 0.8% in the first.
     The Cabinet Office's Private Consumption Integrated Estimates index, which
is based on both supply- and demand-side data, paints a similar picture. It
posted the first month-on-month drop in four months in September, down 0.4%
after being flat in August and rising 0.2% in July. The index marked the first
drop in seven quarters in July-September, down 0.5% on quarter, after rising
0.7% in April-June.
     However, the government's consumption index will also reflect the change
made to the balance between demand- and supply-side information in the GDP
calculation.
     According to the preliminary GDP data for the July-September quarter,
private consumption, which accounts for about 60% of GDP, fell 0.5% on quarter,
the first drop in seven quarters after a revised +0.7% in Q2. It trimmed Q3 GDP
by 0.3 percentage point while domestic demand lowered total growth by 0.2
percentage point.
     Business investment rose 0.2% on quarter in Q3 for the fourth straight q/q
increase after rising 0.5% in Q2, but it made zero (+0.0 percentage point)
contribution to the Q3 GDP.
     The Cabinet Office will calculate revisions to the Q3 GDP after looking at
capex and private-sector inventories in the Financial Statements Statistics of
Corporations by Industry, a quarterly survey by the Ministry of Finance due this
Friday.
     In monthly data, weather conditions and goods price swings continue to
cause fluctuations, with a slight rebound expected for November. But retail
sales and consumer spending are expected to remain modest due to population
aging and frugal household spending habits.
     Data released Wednesday showed retail sales fell 0.2% on year in October,
the first year-on-year drop in 12 months, as typhoons hit many parts of the
country for two weekends in a row and there was one fewer Saturday compared to
the year before.
     But the government left its assessment of consumer spending unchanged from
the previous month, saying retail sales showed "signs of a pickup." It has
maintained that assessment since the data for November last year, when it
upgraded it from "flat."
     Compared to the previous month, retail sales were unchanged on a seasonally
adjusted basis after rising 0.8% in September. The three-month moving average of
August-October sales fell 0.3% after rising 0.1% in the July-September period.
     Department store sales component of government retail sales (slightly
different from industry data) slumped 2.0% on year, as the stormy and rainy
weather kept shoppers away while low temperatures supported sales of autumn and
winter clothing. Indications suggest a rebound in November as the weather
stabilized, an official at the Japan Department Stores Association said.
     "There are both positive and negative factors in the October data,"
Kazuhiko Manaka, director of the Office of the Current Survey for the Service
Industry at the Ministry of Economy, Trade and Industry, told MNI.
     "In the seasonal adjusted month-to-month move, the level of the retail
sales index has been flat for a long time, with positive and negative factors
switching positions from time to time," he said.
     In October, fuel sales rose 6.0% on year in light of rising crude oil
prices, posting the 11th straight year-on-year rise, while automobile sales
gained 3.2% on continued solid demand for new models. Sales of medicine and
cosmetics rose 3.2% as the cold season began and demand from visitors from
overseas remained strong.
     On the downside, sales of food and beverages fell 1.5% on year as prices of
fresh food slipped, marking the first drop in eight months.
     "People are also looking for lower prices and they have not moved out of
their frugal spending patterns while wages are growing only gradually," Manaka
said. "Retail sales lack strength."
     Sales of machinery (consumer electronics) dipped 0.9% on year as many
consumers waited for the November release of the iPhone X, instead of buying the
iPhone 8 that went on the market in September.
     Economists expect retail sales to remain not so strong but not so weak
overall, being propped up by rising energy costs, solid demand for automobiles
and spending on luxury goods by wealthy consumers amid wealth affect from the
stock markets.
     "The METI's BigData STATS showed the index showing home electric appliances
POS (point of sales) at large retailers rose 5.2% on year on Nov. 19 after the
recent slump through October. This indicates demand for smartphones may have
rebounded this month," said Akiyoshi Takumori, chief economist at Sumitomo
Mitsui Asset Management.
     The iPhone X was released on Nov. 3. The index rose 0.2% on year on Nov. 12
and gained 1.7% on Nov. 7 after falling 0.5% on Oct. 29. In the whole of
October, the index slumped 2.7% on year after slipping 0.5% in September.
     "But household spending will remain sluggish as the share of seniors
continues to rise. Retail sales figures are nominal, so changes in fresh food
and energy prices tend to make them look bigger or smaller than actual demand."
     Real average household spending, due Friday, is forecast to have slumped
0.4% on year in October, the second consecutive drop, after falling 0.3% in
September, according to the median projection by economists polled by MNI.
--MNI Tokyo Bureau; tel: +81 90-4670-5309; email: max.sato@marketnews.com
--MNI BEIJING Bureau; +1 202-371-2121; email: john.carter@mni-news.com
[TOPICS: MAJDS$,M$A$$$,M$J$$$,MT$$$$,MX$$$$]

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