Japan's household spending bounces back with 2.9% gain in August

[TOKYO] Japanese households increased spending more than expected in August after a contraction the previous month, with purchases of food and clothing contributing to the change.

Spending rose 2.9 per cent from a year earlier, the first gain in three months, the statistics bureau said on Friday. That was more than the median estimate of a 0.3 per cent gain in a Bloomberg survey of economists. The unemployment rate was 3.4 percent, compared with 3.3 per cent in July.

The data contrasts with a surprise drop in industrial production in August raised that concern that Japan may have slipped back into recession. Economists from JPMorgan Chase & Co, Meiji Yasuda Life Insurance Co and BNP Paribas SA are among those pointing to signs that the economy contracted in the three months through September.

"The gain in household spending is a bright spot for the economy, which may help ease pessimism over Japan's outlook," Hiroaki Muto, chief economist at Tokai Tokyo Research Center Co in Tokyo, said before the report's release. "Private consumption will probably rebound from the second-quarter slump, albeit at a moderate pace, with a recovery in wages." JPMorgan cuts its forecast of third quarter gross domestic product to an annualized 1 per cent decline, following the output data on Wednesday. Weak exports, soft domestic demand, and inventories are likely to continue to weigh on growth, according to JPMorgan economist Masamichi Adachi.

Meiji Yasuda Life's Kodama, who estimates the economy contracted by an annualized 0.9 per cent last quarter, said "it's almost certain that the government may compile a stimulus package."

BLOOMBERG