The Economy Watchers’ sentiment on current conditions was unchanged from the previous month, whereas their outlook was gloomier. The current conditions index may be affected by poor weather. This is not the case for the outlook index. Its decline for the fourth consecutive month is a bad sign. Nevertheless, the Cabinet Office maintained its assessment unchanged, stating that the gradual recovery trend has continued.
Retail stores and restaurants have been reporting that they do not feel so much the impact of April’s VAT hike. Indeed, supported by the strong increase in summer bonuses, sales of luxury items have picked up after their sharp drop in April. In July, the conditions index for enterprises serving households even rose close to the 50 mark.
However, the index has dropped in the following months, partly because of bad weather conditions. More important is the sharp fall in household purchasing power due to rising import prices and the VAT hike. In September, consumer prices were 3.3% higher from a year earlier, but disposable income of workers’ households had declined by 1.4%. This will continue to weigh on consumers’ expenditure in the coming months.
Entrepreneurs in corporate-activity related industries have also become increasingly pessimistic. In the construction industry, activity remains supported by the cleaning-up operations and the reconstruction of the Tohoku area. But other industries have been confronted with falling orders and rising inventories. The outlook index fell in September for the third consecutive month, and ended below the 50-mark.
Employment conditions have also deteriorated, even though the current conditions and outlook indices remained in expansion territory. Many companies, in particular in the non-manufacturing sector, are short of manpower. This is partly related to the retirement of the postwar baby boomers.
BY Raymond VAN DER PUTTEN
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