Japan Retail Sales Plunge Most Ever On Base Effect, Widespread Economic Weakness

Overnight we got the latest proof that there is nothing worse for an economy than to be run by a bunch of central planning academics who get "advice" from Paul Krugman. The reason: Japan's retail sales which crashed by 9.7% Y/Y, the biggest annual drop in history. To be sure, the biggest reason for the annual drop was the base effect with the surge in demand last March ahead of the April 2014 consumption tax hike.

 

... but the drop was bigger than what consensus had expected, as expectations were for a -7.3% drop.

And confirming that things are getting worse on a sequential basis as well, was the 1.9% drop in sales in March compared to a 0.7% increase in February. In fact, as the chart below show, on an indexed basis, the March retail sales print was one of the worst since last year's tax hike.

And while lower gasoline prices courtesy of sliding crude (if not any more) translate directly into a decline in sales value, because retail sales are calculated on a nominal basis, in March gasoline prices stabilized, with the result that fuel sales were down only 0.8% mom in March, versus -2.6% in February and -10.9% in January.

In fact, as Goldman breaks it down, the retail sales weakness was due to lack of purchasing across the board as Japan's shellshocked population no longer wishes to be part of the great Abenomics experiment:

  • Auto sales decreased 6.0% mom (February: -2.1%), pushing down overall retail sales by 0.8 pp.
  • Sales of food & beverages (30% of total retail sales) fell 1.4% mom (February: +0.3%), depressing overall sales by 0.5 pp.
  • For the Jan-Mar quarter, retail sales declined 2.1% qoq (Oct-Dec: +1.0%) despite a surge in consumer spending by Asian visitors to Japan during the Lunar New Year holidays. This marked the first quarterly decrease since Apr-Jun 2014 (-7.1% qoq), when sales fell in the wake of the consumption tax hike, and indicates that consumer spending recovery momentum is weak.

So what is Japan's response to the worst spending report in one year: hope that tourists will pick the spending baton. To wit:  Japan retail sales may rebound over the next year as the negative impact from the sales tax hike fades and salaries rise amid a tight labor market, says Takeshi Minami, chief economist at Norinchukin Research Institute. 

"Purchasing by foreign visitors, supported by yen depreciation, may push baseline of retail sales up,” Tokyo-based Minami says in interview; however "only large stores in big city areas may be blessed with foreign visitors’ demand”

In other words, all hope for Fukushima and any city or store, no matter how large, in a 30 kilometer radius, is now gone.