March unemployment rate hits 5.1%, adding to recession fears

The unemployment rate rose past 5% last month and the economy lost more jobs than expected, the Labor Department reported today, deepening the growing consensus among economists that the country is in a recession.

The jobless rate reached 5.1% in March, its highest level since the job losses that followed Hurricane Katrina in September 2005. Employers reported that nonfarm payrolls shrank by 80,000 jobs – the sharpest drop in five years. That followed losses of a net 76,000 jobs each in January and February, for a total contraction of 232,000 jobs over three months.

Mark Zandi, chief economist for Moody’s Economy.com, said the most worrisome news was not just the losses but the fact that they were spread throughout the economy.

“It was a broad-based decline. It wasn’t just housing and Wall Street. The problems in the housing market have now affected the rest of the economy,” Zandi said.

Jared Bernstein, a labor economist with the Economic Policy Institute, noted that jumps in unemployment are typical in recessions.

“In a downtown, new entrants, re-entrants and job losers all compete for a dwindling number of jobs,” Bernstein said. “That’s what pushes unemployment up in a recession, and that’s what we saw in March.”

All together, the Labor Department said, a net 914,000 workers have lost jobs in the last 12 months and 7.8 million are out of work. And those who are employed saw their hourly earnings go up 3.6% in the last year – failing to keep up with the current rate of inflation, which is about 4%.

“With the consumer’s only source of support for spending coming from job-related income growth, a rapidly weakening labor market is the worst possible news for the economy,” said Joshua Shapiro, chief U.S. economist for MFR Inc., an economic forecasting firm in New York. “Until government checks start flowing sometime in May, the consumer is going to be a major handicap for the economy.”

To keep pace with normal rate of population growth, the economy needs to create about 100,000 jobs a month, economists say.

“In a practical sense, there’s not really a debate any more that we are in a recession,” Zandi said.

Politicians seized on the news, with Democrats saying Republicans had not done enough to forestall an economic slowdown, and Republicans warning that the Democrats would do even worse.

Sen. John McCain of Arizona, who has clinched the GOP presidential nomination, called the report “a stark reminder of the economic challenges confronting families today,” but he warned voters against what he called the Democrats’ “anti-growth agenda.”

“The American people cannot afford the Democrats and their economic leadership. Washington must not be an obstacle to economic growth and robust job creation,” McCain said in a statement.

But Democratic presidential candidate Hillary Clinton said blame for the recession belong to Republicans, including the current administration.

“It’s time the president and John McCain recognize the R-word: reality,” Sen. Clinton (D-N.Y.) said in a statement. “Our economy is in serious trouble and unless we act swiftly we could be sliding into a deep and painful recession.”

maura.reynolds@latimes.com

Times staff writers Maeve Reston and Noam Levey contributed to this report.