U.S. Economy: Payrolls Drop, Unemployment at 6.1%
By Shobhana Chandra
The U.S. lost more jobs than forecast in August and the unemployment rate climbed to a five- year high of 6.1 percent, a sign that the economic slowdown is worsening two months before Americans elect their next president.
Payrolls fell by 84,000 in August, and revisions added another 58,000 to job losses for the prior two months, the Labor Department said today in Washington. The increase in the jobless rate sent the misery index, which adds unemployment to inflation, to 11.7 percent, the highest level since 1991.
The deteriorating labor market raises the likelihood the Federal Reserve will postpone any increase in interest rates until next year, futures trading shows. Today's figures increase the risk that President George W. Bush will become the first president since Richard Nixon to oversee two recessions, and may hurt fellow Republican John McCain's campaign to succeed him.
‘‘It certainly increases the probability that we really are in a recession,'' William Poole, former president of the Federal Reserve Bank of St. Louis, said in an interview with Bloomberg Television. ‘‘It is a weak number, including the revisions.''
Yields on benchmark 10-year Treasuries rose after dropping earlier to a four-month low of 3.55 percent, and were at 3.65 percent as of 12:03 p.m. in New York. The Standard & Poor's 500 Stock Index fell 0.6 percent to 1,229.86.
Workforce reductions at companies from UAL Corp. to Gannett Co. are adding to the woes of Americans hurt by lower home values, scarcer credit and higher prices. Separate figures today showed that mortgage foreclosures accelerated in the second quarter to the fastest pace since at least 1979.
Today's report is the penultimate look at the job market before the Nov. 4 U.S. election, with McCain vying with Democratic candidate Barack Obama to take the White House. McCain yesterday addressed the Republican Party 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,'' McCain said today in a statement. Obama, in a statement, said ‘‘today's jobs report is a reminder of what's at stake in this election.''
Keith Hennessey, Bush's national economic council director, said in an interview with Bloomberg Television that he remained ‘‘an optimist'' about the prospects for growth. ‘‘We hope'' the payroll readings ‘‘will improve going forward,'' he said.
Payrolls, which have now fallen for eight months, were forecast to drop 75,000 after a previously reported 51,000 decline in July, according to the median estimate of 76 economists surveyed by Bloomberg News. The jobless rate was projected to remain at 5.7 percent.
Factory payrolls dropped 61,000 after decreasing 38,000 in July, with most losses coming in the auto industry.
Today'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 13 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.
Rising unemployment may make it harder for Americans to keep paying their mortgages. The share of loans with one or more payments overdue rose to a seasonally adjusted 6.41 percent of all mortgages, the Mortgage Bankers Association said in a report today. That's the highest since their data began in 1979.
The Labor Department report also showed the effects of the housing slump and the credit crisis that it triggered. Payrolls at builders fell 8,000 after decreasing 20,000. Financial firms trimmed payrolls by 3,000 for a second consecutive month.
Service industries, which include banks, insurance companies, restaurants and retailers, subtracted 27,000 workers after cutting 12,000 in July. Retail payrolls fell by 19,900 after a drop of 18,100.
‘‘We're losing jobs in all kinds of industries now,'' Roger Kubarych, chief U.S. economist at UniCredit Global Research in New York, said in an interview with Bloomberg Radio. ‘‘This is the clearest recessionary signal we've seen.''
Government offices hired 17,000 after an addition of 6,000 in July. That meant private payrolls fell by 101,000 in August.
Today's report brings the total decline in payrolls so far this year to 605,000. The economy created 1.1 million jobs in 2007.
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 period of time, and usually takes six to 18 months to make a determination.
Consumer spending, which accounts for more than two-thirds 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.
The average work week remained at 33.7 hours. Average weekly hours worked by production workers fell to 40.9 hours from 41 hours, while overtime decreased to 3.7 hours from 3.8 hours.
Workers' average hourly wages rose 7 cents, or 0.4 percent, to $18.14 from the prior month. Hourly earnings were 3.6 percent higher than August 2007. Economists surveyed by Bloomberg had forecast a 0.3 percent increase from July and a 3.4 percent gain for the 12-month period. Average weekly earnings increased to $611.32 from $608.96.