Rise in Jobless Rate May Have Tweaked Consumers’ Anxiety

It’s a development that many Americans had worried about and that experts say could knock the nation off its delicate economic balance and into recession.

Friday’s announcement of a sudden jump in joblessness ends almost a year during which the country’s widely watched unemployment rate remained eerily low, even as one major employer after another ordered large layoffs. Analysts worry that the change will rattle consumers, who have been the economy’s lifeline in recent months, and will end their dogged purchase of everything from houses to health care.

The jump from 4.5% in July to 4.9% in August was the biggest one-month rise in unemployment since the mid-1990s. “The magnitude of the change is the big concern,” said Terry A. Hueneke, executive vice president of Manpower Inc., a huge Milwaukee-based temporary staffing firm. “An increase of this size is the sort of thing people notice. It could have a serious negative impact on consumers.”

There are already signs that it is having that effect, as new statistics show automobile sales slipped in August and retail sales stumbled.

To be sure, consumption cutbacks, if they occur, are unlikely to be precipitous. After all, even at 4.9%, unemployment is still well below its historical average. Some analysts think the new rate was miscalculated and will be reduced in coming months. And conventional theory considers the jobless rate a “lagging” indicator, which means it tends to rise toward the end, rather than the beginning, of economic downturns.

The interplay of economic forces seems to be different this time--edgier, with more riding on minute-to-minute swings of the stock market; more entwined, with events on the other side of the world rippling into ordinary Americans’ lives almost instantly; harder to sort out cause and effect.

In the case of unemployment, analysts fear the new jobless numbers will convince ordinary Americans that what most have treated as little more than a pause in economic growth may be something more durable and dangerous.

“The psychology is beginning to change,” said Mark A. Zandi, chief economist of the West Chester, Pa., research firm Economy.com. “People have been acting like the slowdown was a blip. Now, they’re starting to think this could last for a while” and they had better prepare by reducing their spending.

To the extent that people treat the unemployment rate as a barometer of economic uncertainty, there is some reason to think they should have begun to trim their spending earlier. That is because up until now it’s likely the rate has understated the true dimensions of job loss, analysts said.

In contrast to some other periods of economic slowdown, a substantial fraction of workers has been reacting to the economy’s weakness by dropping out of the labor force when they are laid off and can’t find a new job. Their departure reduced the number of people working, but it also removed them from the unemployment calculations.

Analysts said the trend helps explain how the jobless rate managed to stay so stable and low in the face of layoffs. But it may also have helped lull people into a false sense of security, a conviction that whatever cutbacks companies were announcing were not translating into an overall economic decline.

“It’s meant the unemployment rate is not as good an indicator of economic pain as it used to be,” said Manpower’s Hueneke. He said that, had workers not dropped out of the work force at a faster-than-usual pace, the official jobless rate would be about 6%, rather than about 5%. Others have estimated the number of people counted as unemployed would be more than 8 million, rather than 6.96 million, the official number.

Some analysts have argued that as job losses remain concentrated in the nation’s manufacturing and high-tech sectors, there is little danger to the economy as a whole. They took solace from last week’s employment statistics, which showed factory employers accounting for by far the largest portion of the nation’s job losses.

“Basically what we have here is a manufacturing recession. There is not a lot of evidence it’s spreading,” said Martin N. Baily, who served as former President Clinton’s chief economic advisor and is now at the Institute for International Economics, a nonpartisan think tank in Washington.

There are nevertheless signs that other sectors of the job market are flagging and that hopes of dodging further serious trouble may be misplaced.

Although the nation’s huge service sector has continued to add workers, it has been doing so at an increasingly slower pace. Over the last five months, service employment growth has been running at less than one-tenth the monthly rate of the last two years.

Even the computer service industry, which had avoided the problems in the rest of the high-tech sector, shed jobs last month for the first time since records have been kept. Unemployment among college-educated, white-collar workers outside of the high-tech industry appears to be on the rise.

In addition, polls tracking consumer attitudes suggest that many Americans remain substantially more optimistic about job prospects than employers’ own hiring plans suggest people should be.

For example, polls by the University of Michigan found that more than half of Americans thought unemployment would remain the same or decline in the coming months and substantial majorities thought the chances they would lose their jobs were less than 1 in 4. But a recent Manpower survey of 16,000 U.S. firms showed that 60% expect to add no new workers in the next three months and an additional 11% plan layoffs.

When the economy was hot, “employers had a hard time finding workers, so they’ve been reluctant to let them go,” Hueneke said. But with the economic slowdown now almost a year old, he added, that reluctance “is eroding.”

What now worries many analysts is a return of the kind of anxiety that pervaded the U.S. work force in the wake of the early 1990s recession, when even well-educated workers with substantial purchasing power feared for their jobs.

“That was a time when white-collar workers were hit in a way they hadn’t been hit before,” said Lawrence Mishel, vice president of the Economic Policy Institute, a labor-backed research organization in Washington. Almost a decade of low unemployment was needed for such fears to dissipate, he said.

But with the jobless rate climbing, such concerns--along with a reluctance to spend--could return.

“It’s like picking a scab,” Mishel said. “It’s not going to help things.”