CORRECTED - CORRECTED-UPDATE 1-Japan factory output jumps, stimulus boosts d
(Corrects paragraph 6 to ... after five months of decline, not ...six months...)
* Factory output up 5.2 pct, biggest monthly gain since 1953
* Govt stimulus seen boosting demand but capital spending weak
* Household spending slides, unemployment at 5-1/2-year high
* Mild deflation as weak demand adds to commodity price falls (For more stories on the Japanese economy, click [ID:nECONJP])
TOKYO, May 29 (Reuters) - Japanese factory output jumped in April and manufacturers forecast further gains ahead, but the tentative recovery in the industrial sector has yet to spread to the rest of the economy, with unemployment hitting a 5-1/2-year high and the country stuck in mild deflation.
There were also questions about the sustainability of the jump in production, which analysts said was due mainly to efforts by major governments to stimulate the global economy by encouraging people to buy cars, TVs and the like.
"In the next fiscal year, after the stimulus fades, industrial output may stagnate," said Yasuo Yamamoto, senior economist, Mizuho Research Institute, adding that machinery sales were still weak as companies avoided capital expenditure.
"The labour market is bad and prices are weak, pointing to a deflationary trend. Industrial production is not strong enough to boost the jobs market, so people won't feel the economy is recovering."
Industrial output rose 5.2 percent in April, the biggest monthly gain in more than half a century and sharply higher than the median market forecast for a 3.2 percent rise.
It was the second month in a row of increasing production after five months of decline.
Manufacturers surveyed by the Ministry of Economy, Trade and Industry expected their output to jump 8.8 percent in May and a further 2.7 percent in June.
Japan continued to suffer mild deflation, however, as household spending fell and unemployment hit a 5-1/2-year high with job availability at a decade low.
Japan relies heavily on its big car and technology firms for growth and the slide in world demand after the collapse of Lehman Brothers last September sent the economy, already in a deep recession, to its sharpest quarterly contraction on record in the first quarter.
FACTORIES START HUMMING
The signs that companies are gearing up production have become more frequent in recent days. Car makers Toyota (7203.T) and Honda (7267.T) have reported strong demand for their hybrid cars, helped by government subsidies.
Tech conglomerate Toshiba Corp (6502.T) was reported on Friday to be ready to reverse chip production cuts made since January. [ID:nT17437]
Illustrating the hefty cutbacks on unsold goods and materials, the ratio of inventories on hand to sales made fell 4.9 percent after hitting a record high in February, as unsold goods piled up.
For a graphic showing Japan's output and inventories, click:
For a graphic tracking U.S., European and Japanese production, click: here
The recovery is mostly because of modest signs of improvement in exports with shipments to China, Japan's biggest trade partner, declining at a slower pace in April than a year earlier.
Still, industrial output is less than two-thirds the levels seen a year earlier and many companies remain hesitant about boosting output beyond what is needed for restocking on uncertainty over the outlook for Western markets.
That tentativeness has helped spread the economic pain to households, where spending fell 1.3 percent in April from a year earlier and the unemployment rate hit 5.0 percent -- the highest in five-and-a-half years.
There are now less than half the number of jobs on offer in Japan as there are applicants wanting them, a decade low.
Weak demand, on top of falling oil and other commodity prices, has pushed Japan back into mild deflation, with core consumer prices falling 0.1 percent in April from a year earlier.
For a graphic tracking U.S., European and Japanese CPI, click: here
Japan suffered mild deflation for several years from the late 1990s, and the Bank of Japan expects deflation to persist two years this time.
The government raised its assessment of the economy for the first time in three years in May, saying exports and industrial production are nearing the bottom. (Additional reporting by Leika Kihara and Stanley White)
