Japan’s Demand for Service Falls as Consumer Spending Weakens

By Toru Fujioka

Jan. 20 (Bloomberg) -- Japan’s demand for services dropped in November as a deepening recession prompted companies to fire workers and slash wages.

The tertiary index, a gauge of money households and businesses spend on phone calls, power and transportation, fell 0.9 percent from October, the Trade Ministry said today in Tokyo. The median estimate of 26 economists surveyed by Bloomberg was for a 0.8 percent decline.

Toyota Motor Corp. and Sony Corp. are firing workers to cope with the global recession that triggered a record drop in exports in November. Wages slid and job prospects worsened in the month, and economists say consumers will keep cutting back as the slump in the world’s second-largest economy intensifies.

“In this environment, it is difficult for service consumption to follow a stable upward path,” said Kyohei Morita, chief Japan economist at Barclays Capital in Tokyo. “Households have become increasingly defensive.”

Toyota will cut all 4,500 temporary workers at its 12 Japanese plants this year because of falling vehicle sales, the Yomiuri newspaper reported today, without saying where it obtained the information.

Consumers, whose outlays account for more than half of gross domestic product, have been paring purchases for nine months, the longest losing streak in two years. The Economy Watchers index, a survey of barbers, taxi drivers and others on the front line of the economy, slipped to 15.9 last month, the lowest since the report began in August 2001.

To contact the reporter on this story: Toru Fujioka in Tokyo at tfujioka1@bloomberg.net