May 30 (Bloomberg) -- Japan's household spending fell the most in 19 months, factory production dropped and unemployment climbed, stoking concern the longest postwar expansion is coming to an end.

Spending decreased 2.7 percent in April from a year earlier, the biggest decline since September 2006, the statistics bureau said today in Tokyo. The jobless rate rose to a seven-month high of 4 percent and industrial output fell for a second month.

Japan and the U.S., the world's biggest economies, may barely expand this quarter, economists predict. Stalled growth and the fastest inflation in a decade mean the Bank of Japan is likely to keep its benchmark interest rate at 0.5 percent this year after shelving a policy of gradually increasing borrowing costs last month.

``Today's figures are bad news for the Bank of Japan as they confirm that the economy is deteriorating while inflation maintains a rapid pace,'' said Kyohei Morita, chief Japan economist at Barclays Capital in Tokyo. ``The central bank won't be able to raise or cut interest rates this year at least.''

The yen traded at 105.43 at per dollar at 1:12 p.m. in Tokyo from 105.54 before the reports were published. Japan's currency has weakened 5.5 percent against the dollar in the past two months. The yield on the 10-year government bond fell 2 basis points to 1.785 percent.

Pricier Hamburgers

Inflation stayed close to a decade high last month as soaring costs of food and energy prompted companies to raise prices of hamburgers, pasta and mayonnaise. Core consumer prices rose 0.9 percent from a year earlier after surging 1.2 percent in March, the fastest rate since 1998, the bureau said today.

Bank of Japan Governor Masaaki Shirakawa said this week that costlier oil and raw materials are eroding corporate and household incomes, threatening spending while feeding inflation. He said current interest-rate levels are ``appropriate.''

Japan's economy, the world's second largest, will expand at a 0.3 percent annual pace this quarter, according to economists surveyed by Bloomberg this month, slower than the 3.3 percent in the previous three months. Credit Suisse Group says the economy may contract this quarter. The U.S. will grow 0.1 percent after last quarter's 0.9 percent annualized expansion, analysts say.

``With declining consumer spending and slowing exports, Japan is losing its driving force for growth,'' said Takahide Kiuchi, chief economist at Nomura Securities Co. in Tokyo. ``Japan is on the brink of a recession.''

The economy has been expanding since February 2002, the longest period of uninterrupted growth since 1945.

Automobiles, Electronics

Production fell 0.3 percent in April from a month earlier, the Trade Ministry said, as manufacturers anticipated demand for automobiles and electronics will decline at home and abroad.

The ratio of jobs available to each applicant, a leading indicator of the job market, slid to a three-year low of 0.93. The number of successful applicants excluding new graduates dropped to 15.3 percent, the lowest since the Labor Ministry survey began in 1963.

``The job environment is gradually deteriorating because of waning profits,'' said Masamichi Adachi, senior economist at JPMorgan Chase & Co. in Tokyo. ``Rising oil and food prices are making companies and consumers more cautious, prompting them to pare spending and hiring.''

Pioneer Corp., Japan's third-biggest plasma-television maker, will cut 300 jobs after forecasting its fifth straight annual loss this year, the company said this month.

Big Macs

McDonald's Holding Co. Japan Ltd. will raise prices of cheeseburgers and Big Macs by about 20 percent today. Ajinomoto Co. said this month its mayonnaise will increase for the second time in a year in July.

Core inflation in Tokyo accelerated to a decade high of 0.9 percent in May, today's data showed, suggesting prices nationwide rose at a faster pace this month after the reinstatement of a gasoline tax that expired in April.

Households cut spending on bread by 6.1 percent after prices rose 11 percent. They spent 14 percent less on spaghetti following a 30 percent price increase in the month.

Economic and Fiscal Policy Minister Hiroko Ota said much of the decline in spending was because of poor weather, adding that consumption ``isn't that weak.''

To contact the reporter on this story: Toru Fujioka in Tokyo at tfujioka1@bloomberg.net

Last Updated: May 30, 2008 00:20 EDT