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Rethinking the notion that hot weather means increased consumption in wake of Japan’s scorching summer

by Philip Brasor and Masako Tsubuku

Contributing Writers

Japan seems to suffer more than its fair share of natural disasters, and this past summer was especially bad. In addition to two earthquakes that resulted in considerable damage, there were strong storms that killed dozens and forced thousands to flee their homes.

Some people are saying that this summer’s run of extremely high temperatures also qualifies as a natural disaster. At the very least, the sweltering heat appeared to be a symptom of the climate change that also brought about the deadly storms. One of the key quantifying criteria for phenomena labeled “natural disasters” is their economic impact. Since extreme heat does not necessarily have the same immediately destructive effect on people’s lives in the way that storms and earthquakes do, it is better to gauge its influence in terms of consumer spending.

The conventional wisdom about hot weather as it relates to the economy is that it’s good for consumption. Every year, financial observers look at certain key sectors, usually beverage and air conditioner sales, to measure how well consumption fared during the summer. That belief has become so ingrained, in fact, that when temperatures are lower than usual, market observers expect annual sales in these two sectors to drop below average. Beverage-makers and home appliance manufacturers count on hot summers to drive sales, and they factor it into their yearly revenue projections, so if temperatures are not as high as predicted, they don’t reach their targets and that’s bad for their bottom lines.

By the same token, it would follow that even higher temperatures should result in bigger sales figures for these sectors. Back in June, the Meteorological Agency made its forecast for the July to September period, predicting that temperatures would be “higher than average.”

The business community was pleased. Previously, the hottest summer on record was in 2010, when sales of beer and “beer-like beverages,” not to mention air conditioners, increased notably.

Another beneficiary of the heat were companies who made noodle products.

Consequently, it was assumed that this summer would also see increases in sales of these items, and, in fact, the Japan Electric Manufacturers Association reported that home appliance-makers shipped 1.76 million air conditioning units in July, the highest number for the month since 1972.

However, according to an article in the Sept. 14 Asahi Shimbun daily, beer sales in August for three of the four major brewers were lower compared with the same month last year, despite scorching temperatures that were often in excess of 35 C. Asahi Breweries reported sales were down by 4 percent, while Suntory Beer reported a decline of 5 percent. Kirin Brewery Co. was the only major brand to see an increase, but the newspaper said that was mainly because it had started supplying private brands for Aeon supermarkets.

Sapporo Breweries also said its sales were down, but only by 1.1 percent.

Sapporo’s explanation points to the reason for the overall sales drop: Its signature “black label” beer line sold better than last year in stores, but sales to restaurants and pubs — traditionally a big market for the brewery — were down, offsetting retail sales.

Restaurants, bars and many recreation facilities saw a considerable drop-off in patronage compared to last year, which wasn’t necessarily expected because those sectors did well in 2010. But this summer it was just too hot. Consumers, especially older people who have more disposable income for things like eating out, were being warned on a daily basis to beware of the heat, and therefore stayed in the air-conditioned comfort of their own homes.

A Sept. 4 article in the Nikkei Business Online about summer consumption also said the number of restaurant customers in July was down over last year, but spending per customer was up, resulting in a net increase in sales. The same seemed to be true of “franchise businesses” like convenience stores, where patronage was lower but spending was higher in July. Overall department store sales were down by 6.1 percent in July.

As a result, the courier business boomed as people opted to make purchases online and have their items delivered directly to their homes.

The summer consumption dynamic was explored by the financial magazine Business Journal, which reported that retail sales in general were robust — or, at least, they were in July. Stores sold a lot of typical summer merchandise, and discount electronics shops did impressive business in air conditioner sales. In addition, ancillary products, such as cardboard boxes for shipping beverages to distribution points, also sold well.

Advertising agencies benefited as well with an uptick in revenues since companies anticipated the hotter summer and sought to promote products like drinks, sun block, eye drops, frozen treats, insect repellent, etc. Higher drink sales mean packaging companies and label-makers do brisk business, too.

In addition, gasoline consumption was down since people weren’t driving.

Other products that did exceptionally well this summer were: so-called energy drinks manufactured by pharmaceutical companies and skin care items.

Dairy products also sold well, though that may have had more to do with the higher yen, which brought imported feed prices for dairy cows down and reduced the price of milk products in turn.

Items that didn’t do well: utility gas sales — though people were staying home, they seemed to be cooking less — and pharmaceuticals for hospitals and clinics, since older people were making fewer doctors’ appointments. The travel sector also suffered, since seniors tend to be the main travel spenders in the summer and they opted to stay home this year.

With all these pluses and minuses, the simmering question becomes: How did the summer heat affect overall gross domestic product? Because high temperatures and summer storms will probably go hand-in-hand from now on, a more pertinent question might be: How did climate change affect GDP?

The fact is, the damage inflicted by this summer’s destructive typhoons and rainstorms was enormous. The number of insurance claims for Typhoon Jebi, which hit Japan on Sept. 4, had already hit 485,000 by Sept. 12 — second only to the number seen following Typhoon Mireille in 1991, according to the General Insurance Association of Japan. The Land, Infrastructure, Transport and Tourism Ministry reported that the heavy rain in July caused ¥1.094 trillion in damage nationwide, the largest sum recorded for damage by flooding that wasn’t caused by a typhoon.

In the end, it’s difficult to measure the overall economic effect of the changing weather. Economists seemed to think the high temperatures were good for business on the whole, but it wasn’t necessarily due to consumption, which leaned toward the negative side. An economist who calls himself Gucci commented in his regular Aera magazine column that such calculations are inherently useless, because he thinks people’s consumption is a zero sum game: If during an abnormally hot summer they spend more, during the rest of the year they’ll spend less to make up for it.

In the end, people’s basic attitudes toward consumption have less to do with the weather and more to do with how much money they have to begin with.