Payrolls Fall in September, Jobless Rate Stuck at 9.6 Percent -- But Dow Breaks 11,000

Oct. 8, 2010— -- Payrolls fell in September by 95,000 jobs because of layoffs by the government while the unemployment rate remained stuck at 9.6 percent, the Labor Department reported Friday.

The news drove the Dow Jones Industrial Average to close above 11,000 for the first time in five months as investors bet the government would do more to boost the economy.

The jobless rate has now topped 9.5 percent for 14 straight months, the longest stretch since the 1930s. The private sector added 64,000 jobs, the weakest showing since June.

The drop in payrolls disappointed many economists, who expected payrolls would be about even for September compared with the previous month.

Stocks rose in trading Friday morning, with investors betting that the weak jobs report will prompt the Federal Reserve to take additional steps to stimulate the economy, such as buying more debt.

The Dow Jones Industrial Average broke 11,000 for the first time since May. A surge of 58 points, according to preliminary figures, left the average at 11,006 at the end of the day.

President Obama said Friday that private sector job growth is moving the economy in the right direction, but the government needs to explore ways to help state and local governments keep workers who provide vital services.

"These continuing layoffs of state and local government ...would have been even worse without the federal help that we'veprovided to states in the last 20 months," President Obama said while visiting a family-owned small business in Maryland.

Local governments cut 76,000 jobs last month, most of them ineducation. That's the largest cut by local governments in 28 years.And, 77,000 temporary census jobs ended in September.

Nearly 14.8 million people were unemployed last month, almost 100,000 fewer than in August.

The report is the last before midterm elections that could change the makeup of Congress.

"We've had high unemployment rates for quite a long time, [but] when the number is as it is right now it's not good for any incumbent," said Dennis Jacobe, chief economist at Gallup, the data and polling research company.

A Gallup poll measured unemployment for September, without seasonal adjustment, and saw unemployment spike from 9.3 percent in August to 10.1 percent in September.

"Our unemployment numbers suggest consumers are going to continue to pull back, so we think two things will happen," said Jacobe. "One, retailers are going to be discounting heavily and, two, sales are not going to be much better than last year."

Ahead of Friday's Department of Labor figures the government reported a decline of 11,000 unemployment claims for the week ending Oct. 2. Based on seasonally-adjusted rates, unemployment claims took a dip from 456,000 to 445,000.

In the states with a decrease of more than 1,000 claims, New York, Georgia and New Jersey saw fewer layoffs in both the construction and service industries.

But the picture is not very sunny. "Overall, the job creation picture is still bleak. Weak sales and uncertainty about the future continue to hold back any commitments to growth, hiring or capital spending," said a statement from the National Federation of Independent Businesses.

For the month of September, a national employment report released by the payroll processing company ADP saw jobs shrink by 39,000.

"The decline in private employment in September confirms a pause in the economic recovery," says Joel Prakken in the report.