TOKYO • Japan's retail sales growth slowed in July as shoppers spent less on clothes and cars, but economists remain optimistic that consumer spending will soon gather pace due to a tight labour market.
Separate data on Tuesday showed that household spending unexpectedly fell in July, which has injected some caution into the debate about whether domestic demand can continue to drive growth.
Nonetheless, retail sales did grow for a ninth consecutive month in July, suggesting that the underlying trend for consumption remains healthy.
Some economists say retail sales could fall in August as heavy rains kept people indoors. Spending growth is likely to quickly resume as strong labour demand boosts consumer sentiment, economists say, although tensions with North Korea may undermine that confidence.
"Retail sales can remain in gradual recovery, but it is difficult to maintain the high pace of growth seen earlier this year," said Mr Norio Miyagawa, senior economist at Mizuho Securities.
"The weather in August was not good. However, I'm not pessimistic because the labour market is tight."
Retail sales rose 1.9 per cent in July from a year ago, which was more than the median estimate for a 1 per cent annual increase but still slower than a revised 2.2 per cent increase in the year to May.
Spending on clothes rose 3.5 per cent in July from a year ago, which was slower than the 5.3 per cent annual increase in June, data from the trade ministry showed yesterday.
Spending growth on cars also slowed to an annual 6.6 per cent in July from 8.7 per cent in the previous month.
Demand for labour rose to the highest in 431/2 years in July, data showed on Tuesday, supporting optimism in the outlook for domestic demand.
North Korea's launch of a missile over Japan in the early hours of Tuesday rattled financial markets and could start to weigh on Japan's consumer sentiment if the stand-off over its nuclear programme worsens.