After strong economic data for Japan in January, the latest indicators are disappointing. Retail sales declined by almost 3% from January to February and were only 0.9% above February, 2004. Employment declined 0.4% in February and unemployment was up 2.7%, resulting in a 2 percentage point increase in the unemployment rate to 4.7%

In spite of lower employment, the average worker's household income increased by 4.5% in February and his disposable income was up 5%, suggesting an increase in wages. These data are, however, seasonally unadjusted. The seasonally adjusted index of worker's income actually shows a decline of 0.3%. Such a decline together with concern over employment prospects as a result of the rise in the unemployment rate may have been an important factor causing the average household to reduce living expenditures by almost 9% seasonally unadjusted or 4% seasonally adjusted in the month. The indexes of the worker household's expenditures and the broader retail sales series are shown in the attached chart.