Businesses shed 84,000 jobs in August as the unemployment rate soared to a five-year peak of 6.1%, the Labor Department said Friday in a report providing stark evidence that the economy is foundering.
Fully 2.2 million Americans have lost their jobs in the past 12 months, as the unemployment rate has climbed from 4.7%. So far in 2008, firms have laid off 605,000 workers, with job losses averaging 76,000 a month.
As in recent months, the manufacturing and construction industries took hits. But the huge services sector also felt the pain, with temporary employment firms reporting major declines and retail employment sliding. Health care continued to be a growth area, while government payrolls also rose in August.
"It doesn't have the air of being a full-fledged recession. But the really alarming part is the unemployment rate, which had already gone up more than expected in July and took another leg up in August ... that's definitely kind of shocking" says Bill Cheney, chief economist of John Hancock Financial.
In another troubling sign, the number of long-term unemployed — those out of work six months or more — jumped by 163,000 to 1.8 million, and has surged by 589,000 in the past 12 months. The number of people working more than one job increased in August, while about 1.6 million people were not working but not counted as unemployed because they hadn't looked for a job in the past four weeks.
Richard Moody, chief economist of Mission Residential, says the unemployment rate is really more like 10.7%, after taking into account people working part time for economic reasons and discouraged workers no longer actively looking for jobs.
"What is likely to be further erosion in labor market conditions over coming months means that U.S. consumers will be deprived of one of the key supports for consumer spending, thus locking the U.S. economy of, at best, below-trend growth and, at worst, recession," Moody says.
The economy and job market are deteriorating as the presidential election enters the home stretch. The unemployment numbers are likely to add new impetus to efforts already underway in Congress to provide additional economic stimulus.
Christine Owens,executive director of the National Employment Law Project, says there is a growing need to provide additional unemployment assistance and find policies that will create new jobs.
But economists with Wachovia, in an advisory to clients, said already passed legislation to extend benefits to the long-term unemployed may be making the numbers appear worse as more people say they are unemployed in order to receive benefits, or take longer with their job search.
Pay has also failed to keep up with inflation. The Labor Department said during the past 12 months, average hourly earnings rose 3.6% and average weekly earnings by 3.3%. During that same period consumer inflation has risen 5.6%.
The U.S. economy grew at a surprisingly strong 3.3% annual rate in the second quarter of the year, buoyed largely by rising exports. Some recent economic data has also been positive, including a report this week that productivity gains have been better than expected. But San Francisco Federal Reserve Bank President Janet Yellen in a Thursday speech laid out three reasons why she predicts "decidedly subpar" growth through the end of the year. Consumer spending is sluggish, even with federal tax rebates, strong export growth will likely slow and the housing, financial and labor markets are all weak, Yellen said.
The Fed has cut a key interest rate to a low 2% to bolster the economy, and taken a series of actions to provide liquidity to financial markets. Today's labor market report could make it more likely that the Fed will keep rates at the current, low level for some time.
"The report confirms that the improvement in (economic) growth to 3.3% in the second quarter was just a head-fake. We expect growth to slow in the current quarter to just over 1% and then turn negative in the fourth quarter," says Nigel Gault, chief U.S. economist of Global Insight. "For the Fed, the report confirms that the notion of a rate hike to combat inflation is fanciful — the question now is rather whether the Fed might need to cut again".
The Labor Department said the jobless rate was highest for teenagers, at 18.9%, African Americans, at 10.6% and Hispanics at 8%. The white unemployment rate was 5.4% in August
Manufacturing employment fell by 61,000 in August, with the auto industry shedding 39,000 jobs alone. Temporary employment service employment shrank by 37,000. The construction industy has lost an average of 14,000 jobs in July and August. Still, that's an improvement from the first half of the year, when 45,000 construction jobs were lost each month, on average.