Job Losses in U.S. Slow as Unemployment Climbs to 26-Year High
The U.S. economy lost fewer jobs in August as unemployment climbed to a 26-year high, indicating the recovery from the worst recession since the 1930s will be slow to gain speed.
Companies cut payrolls by 216,000 workers, less than forecast, after a 276,000 drop in July, Labor Department data showed yesterday in Washington. The jobless rate rose to 9.7 percent, higher than anticipated, from 9.4 percent.
The figures stoked concern that a turnaround in the labor market will not begin until well after the recovery is forecast to take hold in the second half of the year. With the ranks of long-term unemployed nearing 5 million, workers are at risk of losing skills, making it difficult to eventually find a job.
“Labor market trends are improving, but the pace is a gradual one,” said Julia Coronado, a senior U.S. economist at BNP Paribas in New York. “Consumer incomes are still under pressure and prospects for growth thus remain fragile.”
The Standard & Poor’s 500 Index yesterday closed up 1.3 percent at 1,016.4 in New York. The yield on the benchmark 10- year note climbed to 3.44 percent at 5:08 p.m. in New York, from 3.35 the prior day.
Rising joblessness underscores Treasury Secretary Timothy Geithner’s judgment this week that it’s “too early” to start exiting from the unprecedented stimulus measures aimed at stabilizing the economy.
Job Cuts
AMR Corp. and Whirlpool Corp. are among the companies continuing to cut staff to lower costs and revive profits in the aftermath of the deepest recession since the 1930s.
“The labor market lags behind the rest of the economy, so we are first going to have to see positive GDP growth,” Christina Romer, chairman of the White House Council of Economic Advisers, said in a Bloomberg Radio interview yesterday. While 9.7 percent unemployment is “a tragedy,” Romer noted that the pace of job losses has slowed from 741,000 in January.
Romer said the Obama administration’s $787 billion fiscal stimulus is working to boost growth and declined to comment on whether a second effort will be needed.
Revisions subtracted 49,000 from payroll figures previously reported for July and June. The drop for July compared with the 247,000 previously reported.
Payrolls were forecast to fall 230,000 in August according to the median of 79 economists surveyed by Bloomberg News. The jobless rate was projected to rise to 9.5 percent. Analysts in a monthly Bloomberg survey projected the jobless rate will reach 10 percent by early 2010 and average 9.8 percent next year.
Recession’s Toll
The latest numbers brought total jobs lost since the recession began in December 2007 to 6.9 million, the biggest decline in any post-World War II economic slump.
Among the 14.9 million unemployed Americans in August, 4.99 million were out of work for more than 26 weeks. The percentage of jobless who weren’t classified as on temporary layoff rose to 53 auto loan rates.9 percent, up from 39.1 percent a year ago.
Almost all categories recorded losses in August, with construction payrolls tumbling 65,000, factories cutting another 63,000 and retailers firing 10,000 people. Only education and health services boosted payrolls last month.
Whirlpool, the world’s largest appliance maker, is among those firms still eliminating positions. The Benton Harbor, Michigan-based company said Aug. 28 it will close its Evansville, Indiana, manufacturing plant, resulting in the elimination of 1,100 jobs.
Furloughs, Leave
Fort Worth, Texas-based American Airlines, a unit of AMR, said this week it will furlough 228 flight attendants and put 244 more on involuntary leave.
Federal Reserve officials had “particular” concern about the job market when they met Aug. 11-12, minutes of the gathering showed this week.
“Long-term unemployment and permanent separations continued to rise, suggesting possible problems of skill loss and a need for labor reallocation that could slow recovery,” the Fed said in the minutes released Sept. 2.
Fed policy makers waited at least a year after unemployment peaked before raising interest rates in the aftermath of the previous two recessions.
Chairman Ben S. Bernanke, credited with preventing a second depression in winning nomination by President Barack Obama for a second term last month, has overseen a $1.2 trillion expansion of the central bank’s balance sheet to combat the credit crisis.
Hours Steady
Yesterday’s report also showed the average workweek held at 33.1 hours in August. Average weekly hours worked by production workers remained unchanged from the month before, at 39.8 hours, while overtime also held at 2.9 hours.
“We’re still going to see some months of job cuts,” said Brian Bethune, chief financial economist at IHS Global Insight in Lexington, Massachusetts. “There is a whole range of options, like adding shifts or hours, that companies can put in place until it becomes necessary to hire people back.”
Workers’ average hourly wages rose 6 cents, or 0.3 percent, to $18.65 from the prior month. Hourly earnings were 2.6 percent higher than August 2008. Economists surveyed by Bloomberg had forecast a 0.1 percent increase from the prior month and a 2.2 percent gain for the 12-month period.
The U.S. recession “is bottoming out” and the economy is poised for “a slow return,” Alcoa Inc. Chief Executive Officer Klaus Kleinfeld said in a Sept. 2 interview. The head of the largest U.S. aluminum producer said government stimulus in the U.S. and China will affect the New York-based company’s earnings “positively” this year.