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Jobless rate hits 5-year high
The nation’s unemployment rate surged last month from 5.7 percent to 6.1 percent, a five-year high, as nearly every sector of the economy shed jobs, the Labor Department reported Friday.
Businesses laid off another 84,000 workers, bringing the total number of jobs that disappeared so far this year to 605,000. Manufacturing was particularly hard hit, with the loss of 61,000 jobs despite strong demand for U.S.-made goods overseas. The foundering auto industry alone accounted for 39,000 lost jobs.
The drumbeat of monthly job losses has lifted the unemployment rate by 1.3 percentage points in the past six months — an extraordinarily rapid rise that economists say is a strong signal of recession. The last time joblessness rose so fast was in 1993 during the “jobless recovery” from the 1990-1991 recession.
While the Boston academic committee that is the arbiter of recessions in the U.S. has not officially declared one, Harm Bandholz, chief economist at UniCredit Markets, is one of many economists who believe a downturn may have already begun.
“The sharp rise in the unemployment rate over the past six months translates into a recession probability of 70 percent, which is higher than in the 1990-91 and 2001” recessions, he said.
Worries that the economy and job market are deteriorating prompted a global rout in stocks the past two days, starting with a 344-point drop in the Dow Jones Industrial Average on Thursday on news of a rise in jobless claims that foreshadowed Friday’s jump in unemployment.
Friday, U.S. stock indexes steadied as investors had anticipated most of the bad employment news. The Dow gained 33 points to close at 11,221.
A few economists were somewhat skeptical of the sudden and unusual rise in unemployment reported by households since this past spring, which seems at odds with the steady but unspectacular trickle of job losses reported by businesses in a separate Labor Department survey.
Stephen Stanley, chief economist at RBS Greenwich Capital, called it a “puzzle” because much of the rise in joblessness has been the result of 2 million people coming into the labor force at a time when jobs have become scarce.
“Why are so many more people looking for work when work is getting tougher to find?” he asked. “One suspicion is that the unusual combination of a weak economy and accelerating inflation has damaged household finances by more than would be the case if inflation were tame, making workers more desperate to find work to make ends meet.”
The possibility that high food and fuel costs are forcing more people to look for work or hold down more than one job is suggested by a recent jump in multiple job holders, he said.
Regardless of the reason, the dramatic rise in the unemployment rate has implications for the elections, where voters have consistently rated the economy as the No. 1 issue this year.
The jump in joblessness to 6.1 percent, added to the 5.6 percent rate of inflation in recent months, has driven the so-called “misery index” to 11.7 percent - the highest level since 1991. The misery index has been a potent predictor of election outcomes, with economists saying the party in power usually gets blamed, while the party out of power usually benefits.
“The jump in U.S. unemployment to a five-year high of 6.1 percent underlines that the November 4 presidential election is likely, for many, to be about the economy rather than nebulous ‘values’ or even national security,” said Richard Beales, analyst with Breakingviews.com, a British financial analysis firm.
He added that further reports about the economy expected out before the election are unlikely to be any “prettier,” as many analysts expect the economy to get worse before the end of the year.
“Hidden unemployment and wages lagging inflation make the economy the most important issue dogging Republican presidential nominee John McCain,” said Peter Morici, business professor at the University of Maryland.
He estimated that the unemployment rate is closer to 7.7 percent when millions of discouraged workers who have stopped looking for jobs are added in.
“Quite simply, ordinary Americans have not benefited from the strong growth accomplished in recent years, and this gives Democratic candidate Barack Obama’s proposals to redistribute income a lot of traction.”
Unemployment has spread broadly across age and demographic groups since spring. While an initial surge in joblessness in May and June was associated with teenagers and college students flooding into the labor force looking for work, last month’s rise hit adults of every race and gender.
Nearly one in five teen workers remained unemployed, while joblessness surged by over a half point to 5.3 percent among adult women and to 8 percent for Hispanic workers. Unemployment soared nearly a full percentage point to 10.6 percent among black workers.
“The pain of job losses among teenagers and minorities are acute,” said Sung Won Sohn, economics professor at California State University. But he took the big increase in people looking for work as a good sign, as it suggests they are finding enough jobs available that they have not gotten discouraged and dropped out of the job market.
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