Tokyo, April 24 (Bloomberg) -- Japanese demand for services fell for a third straight month in February, suggesting a rebound in exports isn't spreading through the economy, hindering attempts to end 18 months of recession. The tertiary activity index, which tracks business at retailers, restaurants, utilities and other service providers, fell 0.4 percent in February, government figures showed. Economists expected a 0.5 percent increase after a 1.1 percent decline in January. From a year ago, the index fell 2.2 percent. Near-record unemployment and falling wages are forcing people to curb their spending, suggesting it may take longer than expected for Japan to emerge from its third recession in a decade. People ate out less at places such as Yoshinoya D&C Co.'s fast- food restaurants and spent less at retailers such as Daiei Inc., the report showed. Consumers ``aren't willing to spend much, partly due to weak winter bonuses and wages,'' said Susumu Okano, chief economist at Daiwa Institute of Research Ltd. ``It's hard to see Japan's economy picking up by the end of the year.'' Spending at retailers, wholesalers and restaurants, which make up one-third of the tertiary index, fell 1.1 percent in February. Demand for all other components of the index, including utilities and transportation services, rose. Daiei, Japan's second-biggest retailer, said sales slowed in February as warm weather crimped demand for winter clothes. The Kobe-based retailer had a 454.2 billion yen ($3.5 billion) loss in the six months ended Feb. 28.

Mad-Cow Scare
At Yoshinoya, a restaurant which serves bowls of rice topped with sliced beef for as little as 290 yen, second-half profit fell 41 percent as Japanese shunned beef after the nation's first outbreak of mad-cow disease. ``The services industry is still quite weak compared with the manufacturing sector,'' Okano said. With domestic demand sliding, the government is banking on exports and production to lead an economic recovery. Factory use rose at the fastest pace in 4 1/2 years in February and exports rose for a third straight month in March. That helped push up the all-industry activity index, which adds factory production and government spending to the tertiary index to create a proxy for gross domestic product. The index rose 0.5 percent in February from a month earlier, and fell 4.3 percent from a year earlier. Exports account for 10 percent of Japan's $4.5 trillion economy, while consumer spending, which has buckled under the weight of record unemployment and falling wages, makes up 55 percent. A separate central bank report showed that prices of corporate services dropped 1.1 percent from a year ago, extending a four-year decline.