TOKYO: Japan's two-year economic slump is far from over, new figures released yesterday show. Sales at major retailers continue to weaken as car exports and oil imports decline. The Ministry of International Trade and Industry said sales at large Japanese retailers fell 4.2 per cent year-on-year in August after declining five per cent in July and 4.8 per cent in June. The Economic Planning Agency said its key ''diffusion index'' of forward-looking economic statistics was 40 for July. A number below 50 suggests declining economic activity while a number above 50 implies economic growth. The index was at 36 in June. July marks the third month in which the index has come in below 50. Economists say the figure presages a further period of economic gloom despite government efforts to kickstart the economy. In the two weeks leading up to yesterday's data, the Government announced a 6.2 trillion yen (about HK$452.6 billion) spending package and a 0.75-point discount rate cut to an all-time low of 1.75 per cent. In light of the data, which were within expectations, economists repeated their calls for further measures to bring about economic turnaround. An income tax cut and concrete measures to deregulate Japan's markets are frequently mentioned. ''This confirms the impression that the economy is having more trouble than usual getting started,'' said Peter Morgan, an economist at Merrill Lynch Japan. ''More priming of the pump is likely to be needed.'' Consumption, which accounts for nearly 60 per cent of the Japanese economy, is a particularly sore spot. Consumption is being hit hard this year because of a cold summer and declining household incomes during the economic downturn. Incomes are expected to keep falling, suggesting there is little chance for an early recovery in personal spending. Meanwhile, Fujitsu plans to reduce research and development spending for the current fiscal year ending next March to some 279 billion yen from a previously scheduled 295 billion yen. The computer giant would cut general sales and administrative spending by 40 billion yen over the same period, a company official said. Fujitsu had boosted its research and development outlays to 319 billion yen in fiscal 1992 and had been forced to cut spending this year due to the economic slump, the official said. The company posted a pre-tax loss of 8.7 billion yen in fiscal 1992. Japan's steel industry, in a last-ditch effort to cope with the prolonged recession, has been examining layoffs. ''Layoffs might start in January,'' a spokeswoman for Kawasaki Steel Corp said. Nippon Steel Corp, the world largest steel maker, was considering some layoffs, but no definite plans had been drawn up yet, a spokesman said. Steel makers were already cutting staff through natural attrition to ride out the recession, and were sending some staff to subsidiaries.