June 29 (Bloomberg) -- Japan's unemployment rate unexpectedly rose to 5.2 percent in May and households cut spending for a second month, adding to evidence that consumer outlays are too weak to drive the economic recovery. The jobless rate climbed from April's 5.1 percent, the statistics bureau said today in Tokyo. The median forecast of 24 economists surveyed by Bloomberg News was for a drop to 5 percent. Household spending slid 0.7 percent from a year ago. A separate report showed industrial production fell in May as manufacturers accumulated inventories, an indication that global demand may be cooling. The strength of spending by Japanese consumers will depend on whether improvements in jobs and incomes are enough to offset a fading of stimulus boosts, according to economist Yoshiki Shinke. "We won't see a lot of growth in payrolls because companies still carry excess labor," Shinke, a senior economist at Dai-Ichi Life Research Institute in Tokyo, said before the report. The yen traded at 89.39 per dollar at 9:01 a.m. in Tokyo from 89.36 before the figures were released. The Nikkei 225 Stock Average opened 0.3 percent higher. Factory output slid 0.1 percent from a month earlier, the Trade Ministry said, underscoring how Japan's export-led recovery is vulnerable to any slowdown in global demand as officials begin to tighten fiscal and monetary policy. Inventories rose 2 percent. Exports, the main driver of Japan's 5 percent expansion in the first quarter, grew at a slower pace for a third month in May. Production Plateau "The global economy is gradually heading toward an exit" from stimulus measures, Hiroshi Watanabe, a senior economist at the Daiwa Institute of Research in Tokyo, said before today's reports. "With global growth moderating, Japan's production is coming to a plateau, even though it will likely continue to increase at a slow pace." Group of 20 leaders meeting in Toronto last weekend endorsed targets to cut deficits even as they said the world recovery remains "uneven and fragile." In Asia this month, China pledged to end a currency peg to the dollar, Taiwan raised interest rates and South Korea signaled increasing concern about inflation. The G-20 also supported Prime Minister Naoto Kan's plans to restore Japan to 2 percent growth as well as shrink the budget deficit to contain the world's biggest public debt. Fading of government stimulus measures at home may also cool production, according to Naoki Tsuchiyama, market economist at Mizuho Securities Co. in Tokyo. Outlook Concern "Chances are growing that the pace of recovery in factory output will slow this quarter," Tsuchiyama said. "That raises concern over the outlook for manufacturers, who have led the nation's rebound since last year." Retail sales slumped 2 percent in May from a month earlier, the biggest drop in five years, as consumers pared spending on cars and other items that qualify for government incentives, a report showed yesterday. Exporters such as Toshiba Corp. are still benefiting from overseas demand. Toshiba said last week that it will boost production of motors for hybrid cars and aim for annual auto- related sales of 700 billion yen by the year ending March 2016. The Bank of Japan's Tankan business survey on July 1 will show sentiment among large manufacturers climbing to a seven- quarter high, according to the median estimate of economists surveyed by Bloomberg. Companies will project their first spending increase in three years, the survey of analysts showed. Income Boost The export-led recovery is at least beginning to spur income for workers. Wages increased for a second month in April as employers had staff work more overtime. A separate report today showed that the ratio of jobs to applicants rose to 0.50 in May, meaning there are 50 jobs for every 100 candidates. The measure climbed to its highest level in more than a year. Honda Motor Co. will hire temporary staff for the first time since November 2008, taking on 600 workers at its Saitama plant, Nikkei English News said this month. --With assistance from Minh Bui and Theresa Barraclough in Tokyo. Editors: Russell Ward, Stephanie Phang

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