Jobless Rate in U.S. Jumps to 4-Year High
The nation’s unemployment rate lurched to a four-year high of 4.9% in August as factories kept lopping off workers to cope with stumbling growth, the Labor Department reported Friday.
The sudden jump in the August jobless rate from July’s 4.5%, as well as an unexpected loss of 113,000 jobs, raised fears that already nervous consumers will put away their wallets, ending a shopping spree that has kept the economy afloat in recent months.
The possibility of an abrupt consumer retreat sent stocks tumbling. Responding to reporters, President Bush expressed his concern. The Dow Jones industrial average fell 234.99 points, or 2.4%, to close at 9,605.85, while the broader Standard & Poor’s 500 index slipped to its lowest level in almost three years.
“This slowdown is real and it’s affecting too many lives,” Bush told reporters. “I want the American people to know we’re deeply concerned about the unemployment rate and we intend to do something about it.” He did not specify what.
Economists had been expecting unemployment to climb substantially since it hit a three-decade low of 3.9% in October. But until last month, it had remained remarkably stable even as the drumbeat of corporate layoff announcements grew louder. Most analysts had predicted the August rate would be 4.6%, up one-tenth of a point from July, rather than four-tenths, and the month’s job losses would be 40,000 or 50,000, rather than 113,000.
Though some observers cautioned there were aberrations in the new numbers that might lead to their being revised downward in coming months, most said the size and abruptness of the jobless jump all but assured it would take its toll on consumers.
“We could see a slide in consumer confidence, and quite frankly I get quite nervous when I see unemployment rates move up as sharply as they have,” Robert T. Parry, president of the Federal Reserve Bank of San Francisco, told a Salt Lake City audience.
Analysts said the latest unemployment figures boost chances that the Federal Reserve will engage in a new round of aggressive interest rate cuts to revive growth. So far, the economy has dodged outright contraction, but just barely, growing at a 0.2% rate from April through June, a big change from the 4%-plus rates of the late 1990s.
The Fed has engaged in one of the swiftest rate reduction efforts in its history this year, driving its principal interest rate from 6.5% to 3.5%. Fed officials have said they are ready to do more, though signaling they would like to slow the pace of cuts until they see whether the already-approved reductions lift the economy. The central bank’s policymaking body next meets Oct. 2.
The new figures showed that the economic slowdown is eroding many of the social benefits of the 1990s boom. Unemployment among such traditionally disadvantaged groups as blacks, which had fallen to historically low levels, has turned abruptly upward. Unemployment among blacks rose from 7.9% in July to 9.1% last month, its highest level in more than three years and more than double the 4.3% rate for whites.
Latino joblessness also rose, but a more modest three-tenths of a point to 6.3%.
As it has been for the last year, the nation’s manufacturing sector was hardest hit. Manufacturing firms dismissed 141,000 workers in August, bringing to 1 million the number of factory jobs lost in the last year. The losses were partially offset by job gains in the service sector.
“There is no escaping the fact that conditions are deteriorating,” said Mark P. Vitner, senior economist with First Union Securities in Charlotte, N.C.
Some analysts cautioned that the new numbers include some flukes: for example, showing public employment falling by 3,000 during the month even as state and local governments were hiring huge numbers of teachers. “There’s something fishy here,” said Diane C. Swonk, chief economist with Bank One Corp. in Chicago. “You’ve got to take these numbers with a big grain of salt.”
But veteran consumer observers said that, right or wrong, the numbers are likely to have a big impact because they will find a receptive audience in the general public.
“People have been expecting the unemployment rate to top 5% since the beginning of the year,” said Richard T. Curtin, consumer survey director at the University of Michigan. “The danger is that the increase is so abrupt it may cause consumers to revise their expectations upward” to, for example, 6%, a move that could lead them to substantially slow their purchases.
The new jobs report fit a pattern that has come to typify the year of piling bad news upon good. Earlier this week, analysts thought they saw the first signs of an economic turnaround in a new National Assn. of Purchasing Management report that suggested the manufacturing sector finally was on the mend.
But Friday’s news of further steep losses of factory jobs, together with a separate report showing manufacturers are continuing to trim inventories, contradicted the earlier news and left many observers despairing.
“It’s a pretty ugly number,” Mark Zandi, chief economist of West Chester, Pa., forecasting firm Economy.com., said of the jobless rate. “It shows that the economy contracted in August and is just skirting recession.”
From the workers’ point of view, one bright spot in the report was that wages continued to rise despite the jump in unemployment. Average hourly earnings rose 0.3%, or 4 cents, to $14.38 in August from the previous month. Over the last year, hourly earnings for production and nonsupervisory workers, who make up more than two-thirds of the work force, have increased 4.2%.
Service employers hired an extra 23,000 workers in August, following the addition of 74,000 in July, according to the Labor Department. The hiring was led by hospitals and health-care companies.
Nevertheless, employment growth in services has slowed to an average of 10,000 jobs a month during the last five months. That is substantially slower than the 93,000 monthly average last year and the 131,000 average in 1999.
There were 6.96 million unemployed workers in August, 1.2 million more than a year ago, according to the department.
