Japan Service Demand Rises for 1st Time in 3 Months

By Jason Clenfield

March 17 (Bloomberg) -- Demand for services in Japan unexpectedly rose for the first time in three months in January as consumers showed resilience to an export-led recession.

The tertiary index, a gauge of money spent on phone calls, power and transportation, gained 0.4 percent from December, when it fell 1.6 percent, the Trade Ministry said today in Tokyo. Economists surveyed by Bloomberg predicted a 0.5 percent decline.

Japan’s recession has fallen hardest on the country’s export-oriented manufacturers and has been slow to take its toll on households. There is a risk that consumer spending will weaken further in coming quarters to reflect cuts to jobs, wages and working hours at companies including Nissan Motor Corp. and Pioneer Corp.

“Consumer spending has been relatively resilient, but given the likely deterioration in the labor market from here, we don’t expect that to be sustained,” said Hiroshi Shiraishi, an economist BNP Paribas in Tokyo. “Manufacturers are going to have to cut payrolls in order to stay in business.”

Spending by Japanese households has held relatively steady considering that the economy shrank an annualized 12.1 percent last quarter. Consumer spending fell 0.4 percent last quarter from the previous three months, compared with a record 13.8 percent decline in exports.

The Nikkei 225 Stock Average climbed 0.5 percent at 9:29 a.m. in Tokyo.

Jobs Cuts

Although some of the country’s biggest manufacturers have cut jobs -- 10,000 by Pioneer and 20,000 by Nissan -- the unemployment rate has risen only 0.3 percentage points to 4.1 percent since the recession deepened in October.

Japanese companies listed on the Tokyo Stock Exchange have cut at least 160,000 jobs in the period. By contrast, firms have cut at least 823,000 jobs since November in the U.S., where the unemployment rate jumped 1.5 percentage points to 8.1 percent in the five months following the bankruptcy of Lehman Brother’s Holdings Inc.

Recent data underscore a divide between Japan’s manufacturers, which depend on overseas markets, and the country’s service companies, which cater to domestic consumers.

Orders for machinery by Japanese makers of cars and electronics fell 27.4 percent in January from the previous month, while bookings by service companies rose 13.5 percent. Profit at manufacturers plunged 94.3 percent last quarter, compared with a 35 percent drop at service firms.

To contact the reporter on this story: Jason Clenfield in Tokyo at jclenfield@bloomberg.net