Japan's Slump May Be Settling In For A Long StayLarry Holyoke
Shoji and Noriko Sanada have plenty of money. He has a good job as a systems engineer with computer maker Nihon Unisys Ltd. She dabbles in the stock market and is at least holding her own. They've paid for their two-story home outside Tokyo and socked away enough for their two sons' college education. But they don't have such things as a giant-screen TV or a VCR loaded with bells and whistles. Indeed, the Sanadas haven't made a major consumer purchase since early this year, when they redecorated an upstairs room.
All across Japan, consumers such as the Sanadas are keeping their wallets closed, and that's bad news for the economy. Sure, the government has its $87 billion economic stimulus package kicking in late this year. There's even a proposal in the works to help Japan's hard-pressed banks. By next spring, Japan's economy is supposed to be humming. A few economists, such as Toshio Suzuki at Nomura Research Institute Ltd., see growth rising as much as 4% next year, vs. an estimated 2% in 1992. But consumers call the tune for 57% of Japan's gross national product. If they don't loosen up, Japan's economy could stay sluggish far longer than anyone expects.
Consumer spending this year is a write-off. It's expected to grow marginally at best, squeezed by the downturn in such key industries as autos and consumer electronics. Department-store sales are showing a year-to-year decline (chart). What growth Japan is getting is coming mostly from exports and public works projects.
BEARISH. Next year doesn't look a lot better. With sales weak and corporate profits sinking, Japanese companies are putting the squeeze on their workers. Overtime, which generates a large chunk of blue-collar pay, is falling. And salaried workers' bonuses, which account for a third or more of take-home pay, are likely to take a hit, too. Major companies ranging from Nihon Unisys to Japan Air Lines are already warning employees that bonuses are likely to be lighter next year. The upshot: Many economists are bearish on consumer spending. Tetsuo Tsukimura, for example, chief economist in Japan for Smith Barney, Harris Upham International Inc., thinks that real consumer income will fall next year, and so will spending, shaving up to 1.2% from the nation's GNP. He says some major companies are seriously considering the unthinkable in Japan: outright firing of regular employees. They have to, he says, with earnings so poor. By one estimate, corporate profits will drop nearly 18% this year.
No major Japanese companies are publicly contemplating firings yet, al- though many are planning to reduce staff through attrition. But major makers of consumer goods have been cutting their sales projections left and right and girding in other ways for lean times. Minolta Camera Co., expecting revenues to be down slightly this year, plans to leave unfilled about 1,000 positions over the next three years. Minolta will be transferring some of its workers to sales affiliates to help drum up new business.
MIND FACTOR. Matsushita Electric Industrial Co., one of the world's biggest consumer-electronics companies, also is preparing for the worst: President Akio Tanii told employees in September that the company must gird itself to maintain profitability even if revenues are flat for the next three years. In late October, Matsushita announced a 54% drop in first-half earnings, along with a cut in executive pay. And Nissan Motor Co., where President Yoshifumi Tsuji is out to improve productivity by a third over the next three years, recently dropped 110,000 vehicles from its sales projections for this fiscal year. Consumers, once ready to try anything new, says Katsunobu Sobajima, who oversees consumer research for Nissan, are "returning to the basics." The consumer confidence index, as measured by Japan's Economic Planning Agency, is now at its lowest level since 1980.
No wonder so many private economists doubt the government fiscal package will turn things around. After all, the naysayers argue, public works only account for about 8% of GNP.
That gives added importance to the purely psychological impact of the package. Even the Bank of Japan is pinning its hopes on a change in consumer attitudes. The central bank maintains that the fiscal and monetary measures enacted so far will turn the economy around, but only if personal consumption does not drop further. BOJ isn't saying what would happen if things don't turn out that way, but the answer seems sure to be several more quarters of poor performance. The message: Don't count on Japan for helping to restart the global economy.