The government on Thursday left its dismal view of the Japanese economy unchanged for the second straight month but slashed its outlook for the global economy due to the U.S. slowdown.

"Short-term prospects involve some concerns, such as a further slowdown of the world economy," the Cabinet Office said in its monthly report on the economy.

The word "further" had been added to its previous prediction that the world economy would slow down.

Regarding the current state of the domestic economy, the report says it "continues to deteriorate."

Tuesday's terrorist attack on the United States was not factored into the report.

The government may review the economic impact of the attacks in or even prior to the next monthly report, however, if the resulting falls in the stock market and the dollar continue, along with the rise in crude oil prices, according to Haruhito Arai, director for economic analysis at the Cabinet Office.

The negative impact of the terrorist attacks on U.S. consumers deserves attention, Arai said.

The report expresses hope that income tax cuts in the U.S will boost consumption.

The deteriorating outlook for the world economy reflects U.S. weakness as well as eroding growth in Europe, typified by countries such as Germany and Italy in the second quarter of this year, the senior government economist said.

The report does not cite a downward revision on the outlook for individual elements of Japan's deteriorating real economy, such as personal consumption, employment, exports, production and corporate earnings.

"Private consumption has remained broadly flat. Exports and industrial production have fallen substantially, and business investment is falling as well," it says.

It also cites the record-breaking rise in Japan's unemployment rate to 5 percent in July. The rate had stood at 4.9 percent the previous two months.

Yet this, observed Arai, signifies no change in the government's assessment.

The report also says that the plunging profits experienced by manufacturers in the April-June period are worrying.

But the view on corporate earnings has been left unchanged in the light of overall results, including those of nonmanufacturers, which kept marginally higher than a year before, the official said.

'Economy watchers'

Workers with jobs particularly sensitive to economic trends downgraded in August their assessments of current and near-term conditions to record lows for the third straight month, the Cabinet Office said Thursday.

The diffusion index of the views of "economy watchers" on the current state of the economy fell 3.6 points to 31.2. It marked the third consecutive monthly record low since the survey was started in 2000, and stayed below the key 50 mark for the 13th successive month.

A reading of 50 indicates that survey respondents, who include taxi and truck drivers as well as restaurant, hotel and shop workers, view the economy as unchanged on average.

The index for economic conditions a few months ahead sank 1.9 points to 35.3, also a record for the third successive month and below 50 for the 11th month in a row.

The survey was conducted in late August, with the number of watchers contacted expanding to 2,050 from 1,500 in the previous survey. The response rate was 90.9 percent.

The percentage of respondents saying current and near-term economic conditions had worsened reached new records in August, with 19.6 percent saying the economy has deteriorated, up from 14.9 percent in July. A further 15.5 percent said it will deteriorate in the future, up from 11.7 percent.

The respondents from 11 regions were asked to rate economic conditions on a five-point scale in comparison with three months earlier.

All the breakdown indexes on household spending, corporate activity and employment were at all-time lows both for current conditions and the near future after setting similar records in June.

The deteriorating employment situation, with the jobless rate hitting a record-high 5 percent in July and leading electronics makers announcing massive workforce cuts, is behind the dismal showing in the latest report, a Cabinet Office economist said.

Temporary staff agencies in the Kanto region and the southwestern Kyushu region, for instance, reported an increasing number of companies refusing to renew short-term work contracts and that older workers in particular are losing their jobs.

Public employment bureau staff in Kyushu and Hokkaido anticipated further job losses due to restructuring efforts by electronics makers and construction companies, the report shows.

As many as 62.8 percent of respondents attributed their assessment that employment conditions are worsening to the dearth of job offers, according to the report.