Jobless rate unexpectedly jumps to 9.7%

The rise in the nation’s unemployment rate last month to a 26-year high underscored the fact that the weak labor market remains a threat to the economic recovery.

Employers dropped 216,000 nonfarm jobs in August, helping to push the U.S. unemployment rate to 9.7% from 9.4% in July, the Labor Department reported Friday.

The latest payroll job losses were smaller than the 276,000 positions eliminated in July and a third of the monthly cuts in the first quarter. The trend encouraged investors and sparked a rally on Wall Street.

But on Main Street, the retrenchment by employers has been so broad and deep that more baby boomers in the prime of their careers are getting caught in layoffs.

During the previous two recessions, in 1990-91 and 2001, people in their mid-40s to mid-50s continued to show employment gains as younger workers felt the brunt of the cutbacks. But since the current downturn began in December 2007, employment in the 45-to-54 age group has fallen by more than 1.2 million, according to the Labor Department.


“It’s an across-the-board pain,” said David Card, a labor economist at UC Berkeley.

The labor woes of this group may be of particular concern, analysts say, because many of them are in the prime of their wage-earning years and have also experienced substantial losses in their housing and stock wealth. Worried about saving for retirement and paying their children’s college tuitions, they have slashed their discretionary spending. That is hurting retailers and consumer-product businesses, which are responding by trimming even more workers.

Even as the broader economy shows signs of reviving, with manufacturing and housing stabilizing, many economists regard solid consumer spending as a key to a sustained recovery. But with hiring sluggish and unemployment expected to hit 10% later this year and stay high for some time, many people are keeping their pocketbooks closed.

By the government’s count, more than 14.9 million Americans are jobless this Labor Day weekend.

Deborah Peterson, 51, of Long Beach is one of them. She has been out of work since April 2008, when she was laid off with 4,000 other employees at Hertz Corp. On Friday, Peterson recalled living large as a regional manager of membership programs for the rental car firm, pulling in around $90,000 a year, including company perks.

“I had all the luxuries of life, but now I’m buying the 50-cent on-sale food items and living on a shoestring,” Peterson said, adding that she rarely goes to the movies and drives a 10-year-old Chrysler Sebring.

Peterson’s last salary was near the peak of her career. Even after more than a year of unemployment, she remains selective about the kind of job she will take on, applying for regional manager and business development roles. Peterson, who is single, said she had to at least match her previous salary to make the mortgage payments on her condominium.

The Labor Department said Friday that a record 5 million people had been unemployed six months or longer, prompting advocacy groups to call on Congress to immediately expand jobless benefits when it returns from summer recess next week.

“Failure to act quickly to expand benefits for those running out will deal a severe setback to the hoped-for recovery,” said Christine Owens, executive director of the National Employment Law Project, which has estimated that unemployment benefits will expire for 1.3 million workers by year’s end.

Officials in the Obama administration stopped short of saying that the White House would push for additional extensions in jobless benefits. But Jared Bernstein, economic advisor to Vice President Joe Biden, said Friday that “we’re definitely working with Congress to examine that kind of option.”

Like others on the Obama team, Bernstein trumpeted the president’s economic stimulus package as helping to pull the economy back from the brink.

“Moving from losing 700,000 jobs a month [in the first quarter] to a third of that last month is a very important improvement,” he said in an interview.

Bernstein said that with only a third of the $787-billion stimulus package having been spent, “there’s still considerable firepower left.”

Yet even by the White House’s own projections, the unemployment rate will hit 10% in the fourth quarter and average 9.8% next year and 8.6% in 2011. The jobless rate averaged 4.6% in 2007.

The jump in last month’s jobless rate came as the labor force grew slightly. An alternative measure of unemployment by the Labor Department that includes discouraged workers and others who have stopped looking for jobs rose 0.5 of a percentage point to 16.8% last month.

The large number of unemployed middle-aged workers is likely to prolong the overall weakness in the job market. Because of their experience and generally higher wage requirements, it will take these workers longer to find jobs. Some will have to settle for considerably less pay, and others will find it tough to pursue opportunities out of their region because they can’t sell their homes or owe more than their homes are worth.

Riverside forklift salesman John Ruley, 50, was laid off from his job in May. He figured that his three decades’ worth of industry experience would be an asset. But the few openings he’s found don’t pay anywhere near his previous annual salary of $78,000.

“It’s half to two-thirds of what you were making before,” Ruley said.

Retraining may be an option for many workers. But it’s not clear where all the new jobs are going to come from.

“Exactly what sector is going to lead us out of the recession?” economist Card asked.

Friday’s jobs report showed that apart from health and education services, every major sector reduced payrolls in August. Manufacturing and construction once again led the job cuts, eliminating more than 60,000 jobs each. Although the pace of job losses has slowed, these two sectors have accounted for about half of the 6 million job losses in the last 12 months.

Younger workers have borne the brunt of layoffs at factories and construction sites. But broad-based cuts in the service industry, including financial activities and professional services such as accounting, have hit workers young and old. The temporary-help industry, often a harbinger of broader hiring, lost 6,500 jobs last month.

Nancy Kurth, 53, spent several years managing a specialty sleep store selling mattresses and other products before being laid off in March. She’s hitting a wall with recruiters, most of whom are offering only part time or contract work or are refusing to pay the minimum $60,000 salary she needs to take care of her expenses.

“I’m trying to look on the positive side,” Kurth said. But joblessness “eats away at your self-esteem and it’s hard to stay motivated.”