/www.bloomberg.com/ Tokyo, Sept. 2 (Bloomberg) -- Japanese workers' earnings fell at a record pace in July as companies such as Sanyo Electric Co. cut pay packets and bonuses in a bid to boost profit.
Cash earnings, including salary, overtime pay and bonuses, of employees at companies with five or more workers fell 5.2 percent from a year earlier. That's the biggest drop since the survey started in January 1990. Adjusted to account for falling prices, earnings fell 4.4 percent, the fastest decline since December 1998.
Japan's four-year bout of falling prices is starting to hurt consumers, who had benefited from rising purchasing power. The wage decline will probably trigger a drop in consumer spending, slowing a recovery from last year's recession, economists said.
``Consumers have been benefiting from the deflationary environment,'' said Ayako Mitsui, an economist at UBS Warburg Japan Ltd., who expected cash earnings to fall about 3 percent. ``Now it's beginning to affect households.''
Japan's economy grew 0.5 percent last quarter, the first increase in five quarters, buoyed by a 0.3 percent rise in consumer spending, which makes up 55 percent of the economy.
Consumer spending will likely fall this quarter, Mitsui said. That will lower corporate sales and profits and drag on growth in the world's second-largest economy.
``People will receive less money and buy less, so corporations will now get less money -- it's a spiral,'' she said.
Spending is already falling, other figures show. Auto sales probably fell in August, a report later today is expected to show, capping a year of declines.
Retail sales fell 2.2 percent in July from June, a drop No. 3 Daiei Inc. and other retailers blamed on typhoons. Today's figures show dropping wages are the more likely explanation, Mitsui said.
Overtime Hours
Sanyo, which is moving production of home appliances to China, reached agreement with labor unions in February to cut salaries by as much as 20 percent for employees who switch to a work-sharing program, which pares an employee's annual working time by as much as 60 days.
Mid-year bonuses paid by Japanese employers fell an average 4.5 percent this year, the first decline in three years, according to a survey by the Nihon Keizai newspaper in July.
In one bright spot, overtime hours worked at all companies rose 0.5 percent from a year earlier, the first increase in a year and a half and a sign the recovery may be starting to spread beyond manufacturers.
Overtime hours worked at Japanese manufacturers with five or more employees rose 4.1 percent, seasonally adjusted, after being unchanged in June. From a year earlier, manufacturers' overtime hours rose 8.9 percent, a third straight gain.