In any case, unemployment in Japan is likely to get worse before it gets better. As in the United States, the jobless rate is regarded as a lagging indicator. For that reason, unemployment trends this year are appropriately seen as a response to weak factory output since the middle of 1997. Given that industrial output has continued dropping in recent months, unemployment is expected to rise further. As a consequence, the volume of output in April approximated early 1989 levels, although it was somewhat higher than at the economy's late 1993 trough.
Few analysts are willing to bet that the drops in industrial production have run their course.
Inventory levels relative to output hit record highs in April. Efforts to bring stocks into line can be expected to lead to further production cutbacks and still weaker demand for workers. Although causality runs primarily from output to unemployment, analysts agree that joblessness is anything but bullish for consumer spending, which generates roughly 60 percent of Japan's gross domestic product. The latest figure was particularly depressing, however, because the fall came on top of weak spending in April 1997, when the hike in the consumption tax to 5 percent from 3 percent went into effect after having shifted expenditures from April to earlier months. Nonetheless, continued dismal economic news could reignite debate on the overall adequacy of expanded public works spending and temporary personal income tax cuts.