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Will Private Consumption Maintain Its Firmness?

--Seven reasons why consumption has remained firm compared to declining income--

March 2003 Aiko Mineshima

The Economic Commentary series are edited and published by the Bank of Japan's Research and Statistics Department in order to provide material to deepen understandings on economic developments, mid-term economic themes, and economic indicators and statistics. The views expressed in the report are those of the authors and do not necessarily reflect views of the Bank of Japan. The English version of this series is translated by our staff based on the Japanese original.

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Structural adjustments in the labor market continue, such as reduction of bonuses, no regular increase in basic salary, and the switch from regular workers to part-time workers. The decline in household income, therefore, has still not come to a halt.

Macroeconomic statistics, such as GDP consumption, and economic indicators, such as automobile sales and department store sales, all showed that the underlying trend of consumption has been weak. However, another perspective on consumption is that it has been rather firm taking account of the decline in income. In fact, the share of consumption among household income (propensity to consume) has been on an uptrend.

In this paper, seven factors will be put forward as a hypothesis for the firmness in private consumption despite the decline in income. Based on these factors, the outlook for private consumption will also be examined.

  1. Aging of population
  2. Advancing consumption of the youth
  3. Increase in pension benefits and severance pay
  4. Shift from housing purchases
  5. Inertia the consumption development
  6. Improvement in consumer confidence
  7. Creasion of new goods and services