U.S. Jobless Rate Hits 5-Year High : Economy: Labor Department officials say that unemployment may actually be worse than the December figure of 7.1%. California reaches 7.7% mark.

The nation’s unemployment rate climbed to a five-year peak of 7.1% in December, the government reported Friday, as President Bush returned from his Asian trip to a stalled economy and fresh demands for federal action to deal with it.

In California, the jobless rate rose from 7.4% in November to 7.7% last month.

The grim report prompted Federal Reserve Chairman Alan Greenspan to signal a willingness to lower interest rates further if needed.

“We will continue to monitor the situation carefully and stand ready to take steps necessary to foster sustainable economic expansion,” Greenspan told a joint hearing of the Senate Banking and Budget committees on Friday.

Bush, talking to reporters after arriving from Tokyo, expressed disappointment with the unemployment figures.

“Clearly . . . our economy is not growing fast enough,” he said, adding that trade agreements with Japan will create more jobs.

On Capitol Hill, members of the Senate Banking and Budget committees criticized Bush’s handling of the economy and called for the Fed to reduce interest rates further in hopes of sparking a quicker recovery from the 18-month-old slump.

The national unemployment rate, up to 7.1% from November’s revised 6.9%, is at its worst level since 1986, the Labor Department said. There are 8.9 million jobless Americans, the most since the 9 million recorded in January, 1984.

Since the recession began in July, 1990, the ranks of the nation’s unemployed have soared by 2.1 million, while the unemployment rate rose 1.7 percentage points. Even so, the rate is far below the average 9.7% level recorded in the depths of the 1981-82 downturn.

But Labor Department officials acknowledged that the employment picture may be worse than depicted in the monthly report. A more comprehensive measure of unemployment--including those who have dropped out of the labor force or have had to accept part-time rather than full-time jobs--indicates a jobless rate of 10.4% in the closing months of last year.

In December, there were 1.1 million “discouraged” workers, those so dejected about their job prospects that they abandoned the search. More than 6 million others were working part-time at the end of 1991 because they could not find full-time work. And the number of Americans who have been unemployed for longer than six months grew to 1.5 million in December, up from 1.3 million the month before.

December’s increase in the unemployment rate reflected continued job losses in manufacturing, transportation, construction and such white-collar fields as trade and finance, the government report indicated.

In discussing the latest report at the Senate hearing, Greenspan said the nation’s economy was displaying extraordinary, almost unprecedented difficulties. “Having a recovery stall out and flatten out--I find that very disturbing,” he said.

He said that steps already taken to reduce interest rates, including a 1 percentage point cut in the Fed’s discount rate--the basic lending rate to banks--to 3.5% last month should be enough to turn the economy onto a growth path. However, he indicated that the Fed would consider another rate cut if the economy did not respond in the coming weeks.

The new jobless figure prompted renewed demands from leading Democrats for swift approval of an economic recovery package to provide jobs and extended unemployment benefits.

“The situation is grim--very grim--and bleak prospects for the future make the situation very serious indeed,” said Sen. Paul S. Sarbanes (D-Md.), chairman of the Joint Economic Committee.

Rep. Dan Rostenkowski (D-Ill.), chairman of the House Ways and Means Committee, said the numbers, including an unemployment rate of 9.3% in Illinois, were both distressing and unacceptable.

“That’s worse than a recession,” he said. “On the northwest side of Chicago, it looks more like a depression. If the White House proves unable or unwilling to provide economic leadership for our nation, the Congress will act without it.”

Bush has promised to unveil his own anti-recession program in his State of the Union message to Congress on Jan. 28, probably including tax incentives for investment and a middle-income tax cut.

Some private economists said the increase in December unemployment was expected and noted that total non-farm employment rose modestly by 31,000 last month while average weekly hours and weekly pay showed healthy increases.

“This is not good news . . . but this does not mean that the economy is falling apart,” said Barry Bosworth, an economist at the Brookings Institution.

One bright spot in the December report was a slight increase in the average workweek to 34.5 hours, back to a pre-recession level of mid-1989. Average weekly earnings also climbed sharply by $5.92 to $362.25 for rank-and-file workers in private, non-farm employment.

The Labor Department, however, said the overall figures showed “continued weakness” last month, with retail stores hiring far below the usual number of employees for the holiday season.

“Unemployment will definitely get worse in 1992,” Dan Lacey, editor of Workplace Trends newsletter, told the Joint Economic Committee. He said corporations were planning extensive layoffs to reduce their payrolls to a “core staff” that could be supplemented by temporary workers if business improved.

Many big states suffered from higher jobless rates in December. Ohio’s unemployment went up from 5.6% to 6.6%, Pennsylvania’s rate moved up from 6.5% to 7.1%, equaling the national figure, and unemployment in Illinois jumped from 8.5% to 9.3% last month.

In California, while the December unemployment rate rose to 7.7% percent, the number of workers in non-farm industries increased by 3,200, for a total of 12.86 million employed.

Unemployment in Los Angeles County slipped to 8.3% last month from 8.5% in November, while total employment fell to 4.138 million from 4.185 million. However, the local numbers are not seasonally adjusted and are more volatile than state and national statistics.

“It’s like a bouncing ball, and it’s certainly discouraging news for the state,” said Jack Kyser, economist for the Economic Development Corp. of Los Angeles County, a nonprofit jobs promotion group.

“This is not the last increase in the unemployment numbers that we’re going to see,” added Stephen Levy, director of the Center for Continuing Study of the California Economy in Palo Alto. “We can expect unemployment to continue to rise until the economy does very well,” something Levy expects no sooner than late spring or early summer.

Employment in California gained in four sectors in December: retail trade was up 27,500 jobs during the month; services added 7,100 jobs; transportation and utilities gained 2,500 jobs and finance, insurance and real estate increased by 1,500 jobs.

Of the five sectors that lost jobs, manufacturing employment fell 16,500, construction jobs were down 15,300, government jobs declined 3,200, and mining and wholesale trade employment each declined by 200 jobs.

Times staff writers James Bornemeier in Washington and Nancy Rivera Brooks in Los Angeles contributed to this story.