Japan's patchy recovery leads to higher factory output but more jobless, falling prices

TOKYO (AP) — Japan received an uneven assessment of its economic health Friday with indicators showing an increase in joblessness and ominously falling prices.

Unemployment worsened in March, and deflation intensified. At the same time, household spending rose and factory output expanded slightly on growing export demand.

Japan's seasonally adjusted jobless rate rose to 5 percent in the first increase in five months. The figure is up from 4.9 percent in February and missed Kyodo News agency's forecast for the rate to be unchanged.

The number of jobless totaled 3.5 million during the month, up 4.5 percent from a year earlier. Those with jobs fell 0.6 percent to 62.1 million.

The numbers underscore a patchy recovery facing the world's second biggest economy — but the slowest growing one in Asia. Robust growth in China and elsewhere in the region is fueling demand for Japanese cars and gadgets. Corporate profits are up, and business confidence is recovering.

Companies, however, remain cautious about spending. Workers have yet to see a major turnaround in jobs or wages, which managed a small rise in March.

Goldman Sachs economist Chiwoong Lee describes the labor market as having "no spark."

"Viewed over several months, the path is flat," he said in a note to clients. "Deterioration has eased but not given way to improvement."

That has dragged prices lower as stores scramble to attract increasingly finicky consumers.

Japan's core consumer price index, which excludes prices of fresh food, declined 1.2 percent in March from a year earlier. The result marked the 13th straight month of decline. Prices fell for a swathe of goods from fuel to furniture.

Lower prices may seem like a good thing, but deflation plagued Japan during its "Lost Decade" in the 1990s. It can hamper economic growth by depressing company profits, sparking wage cuts and causing consumers to postpone purchases. It also can increase debt burdens.

Core CPI for the Tokyo area, seen as a barometer of future price trends nationwide, retreated 1.9 percent in April.

Separately, preliminary data show industrial production edged up 0.3 percent in March from the previous month on growing export demand. Contributing to the rise were makers of electrical machinery, transport equipment and steel products, the Ministry of Economy, Trade and Industry said.

The reading undershot Kyodo's forecast for a 0.8 percent rise. The survey predicts that factory output will jump 3.7 percent in April, then slip 0.3 percent in May.

Shipments in March rose 1.6 percent, while inventory declined 1.6 percent.

The government also said household spending during the month jumped a real 4.4 percent from a year earlier. Economists credit the solid figure to tax breaks and other government incentives to spur shopping. But they warn that consumption may wane once the programs end later this year.

The central bank will release a decision on monetary policy later Friday, then release its latest forecasts for prices and economic growth. The policy board is expected to keep its key interest rate unchanged at 0.1 percent.