Unemployment Rate Rises to 4.5% in April
Corporate America shed more jobs last month than at any time in the last decade, the government reported Friday, driving the unemployment rate to a 2 1/2-year high of 4.5% and dampening hopes of confining the economy’s troubles to a few industries or regions.
April’s loss of 223,000 jobs, together with March’s 53,000-job decline, represented the first major setbacks of the current downturn to affect ordinary working Americans. Although stock prices and corporate profits have been tumbling for months, the ready availability of jobs and robust consumer spending had seemed almost immune to trouble.
Besides the sheer size of the job loss--the largest since February 1991--the new figures suggest the spread of problems to economic sectors, such as services and construction, that had remained strong. Service employers erased 121,000 jobs during the month, the Labor Department said Friday. Construction firms dropped 64,000.
Analysts fear that if unemployment and job security worries spread, consumers will cut their spending sharply, a move that could prove fatal to further growth and push the economy into a steep downward spiral that it has so far avoided.
“These are about as ugly numbers as you could possibly get,” said Robert B. MacIntosh, chief economist of Eaton Vance Management Inc., a Boston-based mutual fund company.
“This looks like the death knell of the expansion,” said James W. Coons, chief economist of Huntington Banks in Columbus, Ohio. “Up until now, I’d thought we could dodge a recession. Now I’m not sure we can avoid one.”
In a seemingly perverse move, investors greeted the new job numbers as good news by driving up stock and bond prices. But analysts said that was only because the figures increase chances that the Federal Reserve will slash interest rates more steeply than it might otherwise have to offset new signs of economic weakness.
The technology-laden Nasdaq Composite Index climbed 2.1%, and the Dow Jones industrial average rose 1.4%.
The Fed’s policymaking body, which is scheduled to meet next in 10 days, is now widely expected to cut interest rates at least another half point to 4%. Since the start of the year, the Fed has slashed rates two full percentage points.
Economists were particularly thunderstruck by the latest job losses because of a string of recent reports suggesting that the economy was not nearly as bad off as previously thought. The reports convinced most analysts that corporate America would add about 25,000 jobs in April, rather than subtract more than 200,000.
The government reported last week that, despite a substantial slowdown from a year ago, the economy grew at an unexpectedly strong 2% annual rate from January through March, as Americans continued to buy big-ticket items such as houses and cars at a brisk pace. Homes were being built at a record pace in March, and existing homes were selling at a near-record rate.
But there were signs even before Friday that trouble was on the way. Major corporations issued a torrent of layoff announcements, and initial claims for unemployment compensation began to climb toward a five-year high this week of 421,000.
The economy’s mixed signals have set off a search for explanations about how the country as a whole could skirt recession. In the last six months, analysts have portrayed the nation’s troubles, variously, as limited to technology companies, to manufacturers generally or to corporations, but not reaching consumers. They have suggested that the downturn would be a quick inventory correction as firms got rid of excess goods or a snapback in confidence as the bear market resumed its bull run.
On Friday, some analysts were having trouble digesting the full implications of the bleak new job numbers. Bruce Steinberg, chief economist of Merill Lynch & Co., issued an e-mail early in the day saying that his previously sunny forecast may have been wrong and that “the economy could be beginning to look recessionary.” But he almost instantly took it back in a second e-mail, saying that “after further consideration, we are not . . . moving to a recession forecast.”
Others said the new figures wiped away most hope of avoiding a downturn. “When 223,000 people lose their jobs, they’re probably going to cut back on their spending, and so are their families and neighbors,” said William Cheney, chief economist of John Hancock Financial Services Inc. in Boston.
“The numbers show the problem is not staying confined to one area but is spreading,” said Esmael Adibi, director of the Center for Economic Research at Chapman University in Orange.
Analysts predicted that April’s job losses and the jump in the unemployment rate from 4.3% in March to 4.5% are likely to set off a tumble in the job market that could last for months.
“We’re braced for a series of pretty nasty employment figures” as companies that had been holding on to hard-to-hire employees begin issuing pink slips, said Robert V. DiClemente, chief U.S. economist with Salomon Smith Barney Inc. in New York. “Once the job market weakens, you’re going to get a sharp pullback in spending.”
Nevertheless, analysts found some bright spots.
Average hourly earnings of production and nonsupervisory workers, who account for better than 80% of the work force, rose 5 cents, to $14.22. Over the last year, earnings have climbed 4.3%, somewhat faster than in the preceding year.
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* JOB FORECAST
Experts predict California unemployment increase. C1
