Unemployment increased in Japan in July, according to data reported today by the Ministry of Public Management, Home Affairs, Posts and Telecommunications. The unemployment rate rose from 4.6% in June to 4.9%, the highest in five months. Headline writers in the press declared that the economic recovery in Japan was faltering.

Indeed, the trajectory of labor market indicators is not unambiguously upward. Employment is down from an April peak and also lower than its year-ago amount. Even so, the number of people employed rose 90,000 in July and remains well above a recent trough in November. The Japanese "recovery" is proceeding in fits and starts, making any single month's performance hard to put into a trend or context.

At the same time, the rise in unemployment occurred because of an increase in the labor force. After falling sharply for two months, the total of those employed and unemployed in July regained about half its May-June loss. It is seen in the graph that the labor force has shrunk persistently since the middle of 1998. The July snapback reversed the previous month's 0.3% fall in labor force participation as a percent of the working-age population. Such developments, if sustained, can suggest improved expectations among potential workers who begin to hunt for new jobs they believe might now be available; this is a sign of recovery even as it keeps the unemployment rate from decreasing until actual hiring catches up.