Payrolls shrink by 159,000 in September, most in 5 years
WASHINGTON -- U.S. businesses slashed 159,000 jobs in September — the biggest slide in more than five years — the Labor Department said Friday in a report providing new evidence the economy is tumbling toward recession.
The unemployment rate, calculated through a separate household survey, held steady at 6.1%. As has been the case in recent months, there were large job losses in construction, manufacturing and retailing, while the health care and government sectors continued to add workers. But job erosion is widening with the financial services sector employment down 172,000 jobs since its peak in December 2006.
The 159,000 jobs lost in September were the most since March 2003, when the labor market was still struggling to get back on its feet after being knocked down by the 2001 recession.
More than 2.2 million Americans have lost their jobs in the past 12 months, as the unemployment rate has climbed 1.4 percentage points. The report follows a chain of dismal economic news in the past several weeks, including plummeting auto sales, a drop in factory orders and slowing in consumer spending, which makes up about two-thirds of economic activity. Home prices continue to fall, and credit markets worldwide are in severe distress, limiting consumer and business borrowing.
"The U.S. economy is shrinking, and there will be many more awful reports like this," says Ian Shepherdson, chief U.S. economist of High Frequency Economics, noting that the job loss was far higher than economists expected.
He and other economists predict the Federal Reserve would have to cut interest rates sharply to try to spur economic activity. The Fed has cut a key interest rate to a low 2%. With credit markets so constricted in recent days, consumers and businesses have not felt the benefit of the rate reductions — and are facing higher costs and limited availability of credit.
Another report Friday indicates the sluggish U.S. service sector barely grew in September.
The Institute for Supply Management said its non-manufacturing index came in at 50.2, slightly below August's 50.6 in August but in line with forecasts. A reading above 50 signals expansion.
The reports came before the House of Representatives approved a $700 billion plan to rescue the financial sector by having the Treasury Department buy impaired mortgage-backed securities and other assets. The legislation cleared the Senate easily on Wednesday.
The House failed to muster a majority Monday to pass the measure, sending stock markets tumbling. House leaders are confident changing the bill to raise the limit on Federal Deposit Insurance for savings accounts to $250,000 from $100,000 will secure the needed votes for passage. The bill is also attached to package of tax breaks.
The bill is designed to get the assets off the books of firms, allowing them to lend more, rebuilding confidence and helping set a floor under asset prices. The vote comes amid growing evidence that credit markets are in full seizure. Interest rates on short-term loans are soaring. Fed lending to firms through a series of emergency programs created during the past year ballooned by $285 billion in the past week — the largest one-week increase ever.
The House passed another bill Friday to provide seven weeks of additional unemployment checks for individuals who have exhausted their benefits. The measure would provide another 13 weeks of unemployment aid to workers in states with high unemployment, defined as a three-month average of 6% or higher. The bill would provide about $6 billion in assistance.
"Now more than ever, we have to demonstrate that Congress can respond to the needs of Main Street, and extending unemployment benefits is a major step toward restoring the wavering trust of the American people in their government and the House has done just that by passing this legislation," said Rep. Jim McDermott, D-Wash.
In another troubling sign, the number of long-term unemployed — those out of work six months or more — jumped 167,000 to 2 million. That's an increase of 728,000 in the past 12 months. Long-term unemployment now accounts for 21% of total joblessness.
The number of people working part time for economic reasons jumped 337,000 to 6.1 million in September, and is up 1.6 million in the past year. Further, about 1.6 million people were what the Labor Department calls marginally attached to the labor force — meaning they wanted to work but hadn't looked for a job in the past 12 months. They aren't officially counted as unemployed.
Pay has also failed to keep up with inflation. The Labor Department said during the past 12 months, average hourly earnings rose 3.4% and average weekly earnings rose 2.8%. During that same period, consumer inflation as measured by the Labor Department's consumer price index has jumped 5.4%
Manufacturing employment fell by 51,000 in September, with the nation shedding 442,000 factory jobs in the past 12 months. The auto, fabricated metals, wood products and furniture industries were among the hardest hit. Construction employment declined another 35,000 jobs in September, and department stores shed 11,000 jobs. Auto dealers and auto parts suppliers saw a job loss of 10,000.
The health care industry added 17,000 jobs. The mining sector also added 8,000 positions.
"This (report) was much worse than was expected, as the full weight of the banking crisis, the cost of imported oil and job losses to China bore down on manufacturing and the broader economy with unrelenting pressure, says Peter Morici, professor at the University of Maryland. "Congressional gridlock and presidential inaction on the trade deficit, energy and other issues are driving employers abroad, driving down stock prices and dashing the dreams of middle income Americans. "