Japan's economic recovery falters in May

By TOMOKO A. HOSAKA Associated Press Writer

TOKYO (AP) - Japan's economic recovery faltered in May as moderating export demand dented factory output, household spending fell and the jobless rate unexpectedly rose for a third straight month.

Industrial production dropped 0.1 percent from the previous month - the first decline in three months, the government said Tuesday. Shipments overseas fell 1.7 percent.

Lower output from automakers such as Toyota Motor Corp. and Honda Motor Co. dragged the index south, reflecting softening overseas demand. Factories also made less machinery used for semiconductors and flat-panel displays, according to the Ministry of Economy, Trade and Industry.

"Production momentum is slowing, and with the index coming in below expectation for a fourth month in a row, it seems to be doing so sooner than expected," said Goldman Sachs economist Chiwoong Lee in a note to clients.

The government predicts output to rebound 0.4 percent in June and 1 percent in July - notably smaller gains than in March and April.

The results point toward weaker growth in the world's second biggest economy, which has relied on a rebound in exports to underpin recovery. Brisk overseas demand, particularly from Asia, drove annualized economic growth of 5 percent in the January-March quarter.

But that momentum is starting to cool as governments roll back stimulus measures and focus instead on controlling spending and debt. Data last week showed that while export growth is still robust, it has slowed every month since February.

World leaders who gathered for the Group of 20 meeting in Toronto pledged Sunday to slash government deficits in most industrialized nations in half by 2013, despite warnings from U.S. President Barack Obama and others that overly aggressive austerity measures could derail the global recovery.

Japan's new Prime Minister Naoto Kan, who has made debt reduction a priority, has a more immediate concern. With upper house elections looming on July 11, he must convince voters that his party can also figure out a way to fuel growth and fight deflation.

Separate data Tuesday showed that the country's seasonally adjusted jobless rate climbed to 5.2 percent, up from 5.1 percent in April and the highest level since December.

The number of jobless stood at 3.47 million, which is unchanged from the previous year, according to the Ministry of Internal Affairs and Communications. Those with jobs fell 0.7 percent to 62.95 million.

The export boom has been slow to translate into sustained improvements for workers and families, which has persistently dampened domestic demand and pushed prices down. Government incentives for cars and energy-efficient household appliance gave consumption a much-needed boost earlier, but the effects now appear to be fading.

Household spending in May fell a real 0.7 percent from a year earlier as incomes retreated, the government said in another report. Average monthly household income fell a real 2.4 percent from a year earlier to 421,413 yen ($4,714).

A picture of the mood in corporate Japan will emerge Thursday when the central bank releases its closely watched "tankan" survey of business sentiment.