Japan's jobless rate returned to its highest level of the post-war era in October, industrial output sputtered and households cut spending, providing more evidence that a nine-month economic recovery is losing steam.
The government said yesterday that the unemployment rate hit 5.5 per cent last month, up from 5.4 per cent in September, while output from the country's factories and refineries fell for the second straight month as exports slow.
Industrial output fell 0.3 per cent from the previous month, following a revised 0.1 per cent fall in September and confounding a Reuters poll forecast of a 0.4 per cent rise.
The Ministry of Economy Trade and Industry (METI) downgraded its assessment for industrial output for the first time since January 2001, saying it was on a flattening trend.
Other data for October showed that deflation retained its grip on the economy while household spending weakened, adding to worries that a key prop for the recovery is wobbling under the strain of rising joblessness and falling incomes.
"This clearly illustrates that the domestic economy is falling into a deep deflationary phase," said Shinichi Sato, fixed income strategist at Mitsubishi Securities.
"(The industrial output) results were far worse than our expectation of plus 0.5 per cent and also much lower than the original (government) forecast of plus 1.2 per cent," he said.
Industrial output, which is heavily dependent on exports - particularly to the United States - has been weakening after rising at a brisk quarterly clip of 3.8 per cent in April-June.
Exports jumped 8.5 per cent in October from the previous month, halting a four-month slide, but economists said that one-off factors flattered that figure and they remain sceptical about the outlook despite tentative signs of a US rebound.
METI forecast that manufacturers' output - a key component and close proxy of industrial production - would fall 0.1 per cent this month but rise 0.6 per cent in December.
The surprise fall in output weighed on the stock market, but the Nikkei average still eked out a 0.43 per cent gain by midday as most investors are already resigned to a fading recovery.
After staying at 5.4 per cent for five straight months, the jobless rate revisited a post-war high of 5.5 per cent, last seen in December 2001, as companies restructured to deal with a weak domestic economy and slackening exports.
A decade ago, such a high figure would have been unthinkable in Japan's jobs-for-life labour market, but experts say that even this number - which compares with a jobless rate of 5.7 per cent in the United States - underestimates the problem.
The number of unemployed rose by 100,000 from the previous year to 3.62 million, up for the 19th straight month, while the number of employed fell 500,000 to 63.55 million.
The job participation rate, which shows the percentage of people in the workforce in jobs or actively seeking work, fell to 61.3 per cent from 61.4 per cent. But the jobs-to-applicants ratio improved to 0.56, up from 0.55 in September, meaning there were 56 jobs available for every 100 job seekers.
The prospects for many companies remain bleak. In late October, for example, computer and electronics conglomerate Fujitsu Ltd said it would shed 7,100 jobs in the business year to next March to cope with a protracted slump in telecoms equipment.
One Fujitsu employee smoking a cigarette outside a central Tokyo building yesterday morning said that while his job was in no immediate danger, his anxiety about the future was growing.
"I'm worried that with the economy this bad, I'll eventually get laid off," said 55-year-old Katsuhara Kawasaki.
"I don't think much of this government - there are no real reformers in it and we need a thorough change," said Kawasaki, who described himself as a "salaryman" - the Japanese term for a white collar worker.
Resilient personal spending was one of the few bright spots in gross domestic product figures released two weeks ago that showed the economy extended its recovery from recession into a third quarter in July-September.
But analysts are concerned that prop will be kicked away n the coming months by rising unemployment, falling wages and anxiety over bank reforms that could add to the short-term pain.
If the government's plans to wipe out some 50 trillion yen ($409 billion) of bad bank loans are strictly enforced, corporate failures are likely to rise, throwing more people out of work.
Investment bank Morgan Stanley said this week that 700,000 workers could lose their jobs, pushing the unemployment rate to about 6.5 per cent, if the government takes a hard-nosed approach.
Financial and Economics minister Heizo Takenaka was due to flesh out details of the bank reforms yesterday, but any boost to the economy from sorting out the sector's chronic problems is unlikely to show up for some time.
Other data yesterday showed average spending by households of Japanese wage earners, a key gauge of personal consumption, fell a real 0.7 per cent in October from a year earlier.
Wage-earners' monthly spending per household in October was down a real 2.7 per cent from September on a seasonally adjusted basis, the Ministry of Public Management, Home Affairs, Posts and Telecommunications said.
The government also said that consumer prices fell for the 37th straight month in October, suggesting the economy is no closer to emerging from a deflationary spiral that has depressed consumer demand and company profits for more than three years.
The national core consumer price index (CPI), which excludes volatile fresh food prices, fell 0.9 per cent from a year ago.
A Reuters poll had forecast a 0.8 per cent drop. The core index for Tokyo area prices dropped 0.7 in November year-on-year compared to the poll's forecast of 0.8 per cent.