By Todd Zaun
Associated Press
Saturday, December 26, 1998; Page D09

TOKYO, Dec. 25—Japan's troubled economy continued its downward spiral last month, with no indication of a rebound in sight, according to economic data released today.

Industrial output and sales at department stores are declining and unemployment has reached a record high, according to government figures for November.

And a report from financial authorities shows that Japan's troubled financial institutions have even more bad loans than previously thought.

Nothing in the latest release of economic data supports recent predictions by government officials that Japan's worst recession since World War II is nearing an end.

In an attempt to hasten a recovery, Japan's cabinet today unveiled a draft budget for 1999 that would double the size of the annual deficit as the government pays for efforts to revive the nation's moribund economy.

The $705 billion spending proposal represents a 5.4 percent increase from this year's budget. The budget proposal, which would need approval from parliament, features $86 billion in new public works spending and tax cuts worth about $77 billion.

"This draft budget for fiscal year 1999 has been made up with priority on promoting economic recovery," the Ministry of Finance said in a statement.

The series of dour economic reports began today with the release of November job statistics. The Management and Coordination Agency said Japan's unemployment rate rose to a record 4.4 percent as companies reduced payrolls and suffered a wave of bankruptcies.

The jobless rate was the highest since the Japanese government started keeping track of unemployment in the 1950s. It also was the first time that Japan's unemployment rate equaled that of the United States.

Taichi Sakaiya, head of the Economic Planning Agency, said the job situation would likely get worse before it gets better. "There's strong pressure for the jobless rate to rise," he said.

Sakaiya's comments contrasted sharply with his recent upbeat prediction that the economic slump soon would near an end.

The news was no better for Japan's once-mighty manufacturers.

Industrial output at factories and mines fell in November by 2 percent, compared with the previous month. The Ministry of International Trade and Industry said the decline was considerably larger than forecast by private economists and the government.

And while the ministry predicted that there would be a 0.3 percent rebound in production in December, the government agency agreed with other forecasters that a recovery was not yet in sight. "There still isn't enough data to indicate that the economy has hit bottom," the ministry said.

The trade ministry also reported that sales at major department stores and supermarkets fell 1.5 percent in November, compared with November 1997. It was the seventh consecutive month that retail sales declined.

Economists blame problems at Japan's banks for the prolonged economic slump. Many banks are buried under bad loans left from the collapse of a speculative bubble in land prices in the early 1990s. While the banks battle with the debts, they have cut back on new loans to businesses, contributing to a nasty credit crunch and record rise in bankruptcies.

A report released today by the Financial Supervisory Agency showed that the bad loan problem is worse than banks have acknowledged. The agency said the 17 banks had about $426 billion in shaky loans as of March 31, about 12 percent more than the banks had disclosed.