At 6.1%, rate of joblessness a 5-year high
Posted on Saturday, September 6, 2008
The unemployment rate jumped to 6. 1 percent in August, its highest level in five years, as the erosion of the job market accelerated over the summer, the government reported Friday.
Employers cut 84, 000 jobs last month, more than economists had expected, and the Labor Department reported that more jobs were lost in June and July than previously thought.
The news jolted Wall Street. The Dow Jones industrial average initially fell 150 points but ended the day up 32. 73, or 0. 29 percent, at 11, 220. 96.
So far, 605, 000 jobs have disappeared since January. The unemployment rate, which rose from 5. 7 percent in July, is now at its highest level since September 2003.
Jared Bernstein, economist at the Economics Policy Institute in Washington, said eight months of consecutive job losses had historically signaled that the economy was in a recession.
“If anyone is still scratching their head over that one, they can stop,” Bernstein said.
Employment is among the indicators tracked by the National Bureau of Economic Research, the official arbiter of U. S. economic cycles, in calling a recession. The others are sales, incomes, production and gross domestic product.
The group defines a recession as a “significant” decrease in activity over a sustained pe- riod, and usually takes six to 18 months to make a determination.
Consumer spending, which accounts for more than twothirds of the economy, in July posted the biggest drop in four years after inflation.
The economy “is close to stagnating,” Jan Hatzius, chief U. S. economist at Goldman Sachs Group Inc. in New York, said in an interview with Bloomberg Radio. In part because of continued gains in worker productivity, employers will keep cutting jobs, sending the unemployment rate to 6. 75 percent next year, he said.
Friday’s figures indicate the labor market is deteriorating faster than U. S. central bankers expected. Among Fed governors and district bank presidents, none projected an unemployment rate above 6 percent for the average in the fourth quarter.
Traders see the Federal Open Market Committee keeping the benchmark target rate for overnight loans between banks at 2 percent through year-end, futures show. The chance of a cut in December is 8 percent, up from zero a week ago, with the probability of an increase at just 2 percent, down from 20 percent a week ago and 43 percent in July.
Layoffs have picked up speed in the past three months, contrary to earlier estimates that they had slowed. The government now says that 100, 000 jobs were lost in June, doubling its original estimate.
Raises have not kept up with the rising cost of living, putting more pressure on workers as high gasoline prices and the fastest inflation in decades hurt their spending power.
Hourly wages for rank-andfile workers — those not in supervisory or managerial positions — grew 3. 6 percent since August 2007, below the rate of inflation.
Friday’s unemployment report is the penultimate look at the job market before the Nov. 4 election, with Republican John McCain vying with Democratic candidate Barack Obama to take the White House. McCain on Thursday addressed his party’s convention, pledging to “keep taxes low” and rein in unnecessary government spending.
“This hurts McCain,” said Daniel Clifton, head of policy research for New York-based Strategas Research Partners. “He’s going to get a bounce in the polls after the convention, but it could be less because of this,” he said, referring to the increase in unemployment.
“Americans are hurting and we must act to create jobs,” Mc-Cain said Friday in a statement. Obama, in a statement, said, “Today’s jobs report is a reminder of what’s at stake in this election.” The government reported last month that the economy grew at a relatively brisk 3. 3 percent clip from April to July, with businesses benefiting from foreign demand for Americanmade goods.
But little of that activity, analysts said, has translated to helping the average American worker.
“Whatever is growing the economy, it’s not showing up in the jobs market in any way at all,” Bernstein said.
Officials at the Federal Reserve believe activity will slow sharply for the rest of the year before returning to a faster growth rate in 2009. Manufacturing jobs were hammered again in August, with 61, 000 workers losing their jobs. Nearly 60, 000 administrative workers, including secretaries and temporary workers, were laid off.
Gains came in the education and health-care industries, which added 55, 000 jobs. But those gains were offset by losses at restaurants, auto dealers and factories that make parts for cars and other transportation equipment.
Friday’s report from the Labor Department had been eagerly anticipated by investors who have become increasingly skittish about a global slowdown. The jobs data are considered the most reliable snapshot of the nation’s economy in any given month. Information for this article was contributed by Michael M. Grynbaum of The New York Times and Shobhana Chandra, Rich Miller, Mary Schlangenstein, Betty Liu and Ken Prewitt of Bloomberg News.
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