Sustained Recovery in Consumer Demand?

Don't hold your breath.

But since consumer demand comprises more than 60% of total domestic demand, there will be no real and lasting recovery in the Japanese economy without a recovery in consumer demand. Accordingly, monthly figures on household spending are closely monitored and, each month, commentators have a field day explaining away minor blips and discrepancies. We receive learned pontifications informing us that February 2000 is a leap year month and so is not comparable with February 1999. Other comments point out the lack of coverage in the data of new product categories such as mobile phones as well as the insufficient coverage of young single households.

However, this monthly reading of the tea leaves, while a useful exercise, misses the broader picture. When a new product is introduced into an existing market, in order to get a consumer to switch from his/her current-use product, a reason-to-believe in the new product has to be provided in order to create a change in attitudes. It is no different for Japanese consumers in the aggregate. Is there a "reason-to-believe" that there is a light at the end of the tunnel, or is that light simply a train bearing down on them from the opposite direction? Importantly also, attitudes take time to change, particularly at a national level, and monitoring minuscule monthly changes is not likely to be of much value in this regard.

Fortunately, good data on attitudinal change at a national level is available. Every three years the Economic Planning Agency conducts a major study entitled "A Survey of People's Life Preferences -- The Needs and Consciousness of the People." The most recent study, the 10th in the series begun in 1972, was published in February 2000 and is based on fieldwork conducted in mid-1999. The study involved completed interviews with a nationwide sample of 4,179 randomly selected Japanese nationals (49.5% males and 50.5% females) aged 15 to 74 years.

The majority of the questions in the current study have been asked in each of the earlier waves, and thus we are able to track changes in attitudes over time. In one section, respondents are asked to state how closely they feel that their current situation fits with those outlined in a number of statements. A four-point scale was used to determine the degree of fit -- Completely Fits, More Or Less Fits, More Or Less Doesn't Fit, and Doesn't Fit At All.

Let us look first of all at the results for the statement "Things are moving in the direction where I am gradually becoming better off." Only 21% of respondents felt that this statement Completely/More Or Less Fits their situation, the lowest figure ever registered in the almost 30-year history of the survey, and an 11% drop from the figure in the 1996 survey. See Graph 1 for details.

As can be seen there, in both years, teenagers and those over 70 years of age tend to have higher scores than the other age groups, although the scores themselves are still quite low. More important is the rapid decline, among all age groups, in 1999 versus 1993 in the perception that one is becoming better off. This decline is particularly noticeable among both males and females aged 40-plus, a group which comprises slightly over 50% of the total population and which is a key target in corporate restructuring.

Another statement that has been tracked over time is "I have a bright outlook on how I will spend my old age". In the 1999 study, only 17% have a bright outlook in regard to how they will spend their old age, the lowest score ever recorded on this question.

Among those respondents with a non-bright outlook on how they will spend their old age (83% of the total population), cross-tabulation reveals the following: 70% feel they do not have a sufficient level of savings and 67% feel they will not receive a sufficient old-age pension. Further, 62% are concerned that their salary will not continue to increase (reflecting the increasingly broader spread of the pay-for-performance system), and 59% are concerned that they will not be able to find work in their old age should they want to. In short, solid practical concerns, and ones that are not conducive to increased consumer spending.

In another section of the survey respondents are given a list of 10 broad areas and are asked to rank, in order, the top three of these in terms of importance to them now and/or in the foreseeable future. The respondents are then asked to state, from their perspective, the top three areas, in order, on which national and regional government bodies should be focusing their efforts. The ten areas are Medical Treatment And Healthcare, Education And Culture, Workplace Environment, Recreation And Leisure, Income And Consumption, Living Environment, Public Safety And Individual Security, Family Affairs, Local/Regional Affairs, and Assurance Of Fairness And Livelihood In Society.

Each of the ten broad categories is comprised of a series of attributes / goals, some of which are societal in nature while others are more personal. The attributes in the Workplace Environment area, for example, are the following -- Can Readily Switch To A Desired Job, Can Do Work That Is Rewarding And Suits One, Plenty Of Good Facilities To Help Find Jobs And Provide Training, A Pleasant Workplace Environment Is Maintained, One Can Work Without Concern About Becoming Unemployed, and Problems Between Management And Labor Are Settled Smoothly.

There are a total of 60 such attributes/goals covered in the study. Each is rated in terms of importance and also on the degree to which the respondent feels that the attribute/goal is being fulfilled. Thus, the study provides a wealth of data on which to monitor change across a broad spectrum of societal attitudes.

Let us look first of all at the overall broad picture for these ten areas. The top three areas in terms of importance are Medical Treatment And Healthcare, Income And Consumption, and Family Affairs. These three areas have remained unchanged as the top three since 1981.

However, when we look at the area on which the Japanese population considers the government should be focusing its efforts most, we see some significant changes occurring (see Graph 2). Medical Treatment And Healthcare and Income And Consumption are the top two areas, and Workplace Environment has moved into a strong No. 3 position. (Family Affairs, although it scores in the top three in terms of importance, always scores near the bottom among the ten areas in terms of being considered as something on which the government should focus it efforts.)

If we look at the data for the individual attributes that comprise each of the top three areas, we find once again a strong sense of unease and concern among respondents. Among the attributes that comprise the Working Environment area, One Can Work Without Concern About Becoming Unemployed is the highest-ranking attribute in terms of importance. Yet it scores second lowest in terms of fulfillment, with only Can Readily Switch To A Desired Job scoring lower in terms of fulfillment. In other words, unemployment and occupational mobility are major concerns.

Among the individual attributes comprising the Income And Consumption area, Having A Sufficient Pension In One's Old Age is the highest-ranking attribute in terms of importance. Yet it scores second lowest in terms of fulfillment, with only Able To Achieve A Sufficient Level of Savings To Fulfill One's Goals scoring lower in terms of fulfillment. In short, the aggregate mindset is focused on savings and improving income inflow, and not on spending.

The data in Graph 3 is for the population as a whole, and, as might be expected, there are variations in the ratings depending upon life stage. For analytical purposes, the sample was divided into six life stages, and these life stages were cross-tabulated against the ten broad areas. The six life stages are Education Period (those respondents still at school or university); Singles (unmarried up to the age of 40 years); Family Formation Period (married up to the age of 40 years with no children or first child not yet in primary school); Growing Family Period (first child in primary/ middle/high school or university); Mature Family Period (at least one child has begun working or is married); Old Age Period (all children are working or married).

The top four broad areas of importance across all six life stages have been summarized in Graph 3. Note that Income And Consumption Livelihood is the No. 1 concern for the first four of the six life stages, and is the No. 2 concern for the Mature Family and Old Age periods after Medical Treatment And Healthcare. Note also that, even for the Mature Family and Old Age periods Workplace Environment is still one of the top four concerns.

So what does it all mean? With the partial exception of young singles, the reluctance of the Japanese consumer to increase spending is very deep-rooted. Unparalleled, in fact, in the 28-year history of this survey. Concerns about unemployment, inability to change jobs easily, stagnant or declining salaries, reduced pensions, insufficient savings, increased co-payments for medical expenses, and other such factors are very strong. If we add to this the individual wealth deflation caused by the decline in land prices, golf club memberships, and stock prices since the period of economic bubble, it is not surprising that Japanese consumers remain reluctant to increase spending.

Prime Minister Mori in his first policy speech to Parliament stated that "I will also pay full attention to improve the employment situation as I strive to relieve the people of any concerns they might have for their job security. At the same time, I will steadfastly advance structural reforms ..." Japanese consumers are not stupid. They are aware that structural reform is necessary, and they also know that structural reform cannot be executed painlessly. So expect continued battening down of the hatches on the consumer demand front.