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Japan recovery on track despite record jobless

TOKYO: Japan's unemployment hit a record high in February and is set to climb further, but consumer spending broke a half-year downturn, keeping hopes alive that the economy is limping toward a sustainable recovery.

Economists said Friday's spate of data showed painful but needed corporate restructuring was starting to bite, with hopeful signs of improvement in personal consumption, the lion's share of the economy and the missing link to a durable recovery.

The jobless rate rose 0.2 percentage point to 4.9 percent after holding steady for months, the government said on Friday, and cabinet ministers conceded it will likely worsen as a flood of new graduates hits the labour market this month.

"The rate may rise in the next month or two, but that has been expected," said Finance Minister Kiichi Miyazawa. "Given a rise in firms' capital spending, I don't think joblessness will change the trend in the economy."

SPENDING PICKS UP AS CONSUMERS DEPLETE SAVINGS

Corporate capital spending, the second-biggest chunk of the economy, has showed signs of a pick-up, driven by a rise of investments in the information technology-related sector.

But consumers, whose spending accounts for three-fifths of the economy, have been stubbornly resistant to opening their purses amid the harsh job climate and falling wages.

Yet, Friday's data showed spending by wage earners' households rising a real 3.8 percent from a year earlier, its first rise in seven months and the biggest climb in almost three years.

The Management and Coordination Agency attributed nearly three-fourths of the spending rise to the statistical windfall of a leap-year day, but the rise nonetheless dwarfed the median forecast of a 2.1 percent rise in a Reuters poll of economists.

Disposable income continued to fall, meaning the consumption increase is financed by an unsustainable drawdown in savings, but separate data showed that overtime pay rose for the 10th month in a row.

The households spent 71.5 percent of their disposable income, up from 70.0 percent in January, the agency said.

GOVT SEES GDP SURGE IN CONSUMPTION UPTICK

Economic Planning Minister Taichi Sakaiya took cheer from the spending rise, saying it indicated gross domestic product can climb the two percent needed this quarter to hit the government's target of 0.6 percent growth for the fiscal year ending Friday.

After an explosive start in the first half of calendar 1999 thanks to massive government stimulus spending, the economy slumped back into recession in the second half on weak consumption.

Analysts, too, were cautiously sanguine on personal spending.

"Overall consumer sentiment has improved since the start of this year, with expenditures on travel and personal computers increasing," said Keiichi Matsumura, economist at Dai-Ichi Life Research Institute. "It is fair to say that personal consumption has hit bottom."

More troublesome for consumption, however, is a growth slowdown in housing starts, indicating a curb on big-ticket durables and furnishings in the future.

The slowing to 2.4 percent year-on-year growth from recent double-digit gains showed that the boost of special tax cuts was waning and that recently higher lending rates were cutting into consumers' appetite for major purchases, said economist Shoichiro Yamasaki at Sumitomo Life research Institute. -Reuters