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Will Private Consumption Maintain Its Firmness? -- Seven reasons why consumption has remained firm compared to declining income --

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  • Aiko Mineshima

    (Bank of Japan)

Abstract

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.

Suggested Citation

  • Aiko Mineshima, 2003. "Will Private Consumption Maintain Its Firmness? -- Seven reasons why consumption has remained firm compared to declining income --," Bank of Japan Review Series Economic Commentary, 2003, Bank of Japan.
    • Handle: RePEc:boj:bojrev:03-e-1e
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