663,000 jobs cut in March; workers' hours at record low

WASHINGTON -- The nation's unemployment rate shot up to 8.5% in March as employers shed 663,000 jobs and cut workers' hours to a record low, the Labor Department said Friday in a report showing continued rapid deterioration in the job market.

A record 13.2 million Americans were out of work last month. Firms have cut 5.1 million jobs since the recession began in December 2007, with nearly two-thirds of the cuts happening in the last five months.

The unemployment rate was up from a seasonally adjusted 8.1% in February, and at 8.5% it is the highest since November 1983. A year ago the rate was 5.1%.

For the first time since 1985, less than 60% of the U.S. population was working.

And workers who held onto their jobs weren't having it easy. Non-supervisory employees worked on average 33.2 hours a week last month, lowest since the government began measuring hours in 1964, as businesses cut employees' hours. A record 9 million people were working part time in March even though they wanted full-time work.

The so-called rate of underemployment, which includes people who working part time but who wanted to work full time, and those who dropped out of the labor force because they gave up looking for work, was 15.6% in March. That was up from 14.8% in February and the highest since those records began in 1994.

Labor Secretary Hilda Solis said the administration is working to help those who are losing their jobs, including working with state lawmakers to extend unemployment benefits to a wider pool of workers. Congress in the stimulus bill provided $7 billion to states that expand benefits to more workers, such as those that work part time or were at their job for a short period of time before being laid off. Currently the majority of unemployed workers are not eligible to collect state benefits.

Other focuses include retraining and maximizing the number of jobs created by stimulus spending on infrastructure, the secretary said.

"The president and I are very concerned about the continuing drop off in employment," Solis said in an interview.

The employment situation does not bode well for consumer spending, which accounts for more than two-thirds of U.S. economic activity, economists say.

"Household incomes will remain under pressure, casting doubt on the extent to which the gains in consumer spending seen in January and February will be sustained over coming months," says Richard Moody, chief economist at Forward Capital.

The news came as a few recent economic reports have led to some hope that the economy, while not necessarily poised for a quick rebound, may have hit bottom. This week, for example, the Institute for Supply Management said while manufacturing activity continued to contract in March, the pace of the decline had eased for a third consecutive month.

On Friday, the ISM said its index of service-sector activity in March was 40.8, down from 41.6 in February and the lowest since December as orders, jobs and export orders all fell. Numbers below 50 point to contraction in the sector, which accounts for the bulk of U.S. economic activity.

Federal Reserve Vice Chairman Donald Kohn in a speech in Wooster, Ohio, Friday said aggressive central bank policies had helped to stabilize some sectors of financial markets, but noted that "the economy is very weak and is likely to remain so for a while."

"Many financial markets remain under considerable stress, asset prices have been reduced by the lack of liquidity in markets, and credit spreads and availability still reflect very high aversion to risk," Kohn said. "These conditions are not conducive to a substantial and sustained economic rebound, and the Federal Reserve will continue to be alert to ways that monetary policy can contribute to economic recovery. "

Kohn noted that even after unprecedented Fed actions to cut interest rates, buy up mortgages and pump money into financial markets, it remains "much harder to get and far more expensive than it was in the summer of 2007."

"Are the policies we have put in place sufficient to restart the flow of credit, or will the government need to do more? The answer, of course, is that we don't know — we have no reliable precedents for the current situation," Kohn said.

Some economists say the jobs report suggests the hope may have been premature.

"There is nothing in this report that points to economic recovery," analysts from consulting firm RDQ Economics said in a note to clients.

"This jobs report is going to scare the daylights out of the consumer, and if they don't spend, this recession may indeed last all year," says Christopher Rupkey, Bank of Tokyo-Mitsubishi chief financial economist.

The unemployment rate rose across all ages, genders, races and education levels.

Teenagers continued to be particularly hard hit — the unemployment rate for those age 16 to 19 was 21.7% in March. The unemployment rate for African-American adult men last month was 15.4%, highest in nearly 25 years. The rate for single mothers was 10.8%.

Few sectors of the economy were spared. Some details:

• Construction firms cut 126,000 jobs in March, 21st consecutive month of declines.

• Manufacturers sliced 161,000 jobs, 16th consecutive month of cuts. About 17,500 jobs were cut at motor vehicles and parts factories.

• Retailers cut 47,800 jobs. Nearly 12,000 of those layoffs came at car dealerships.

• Trucking companies cut 14,900 jobs.

• About 25,300 workers in the finance and insurance industry lost their jobs.

• Another 11,700 real estate workers lost their jobs.

• Temporary help firms cut 71,700 workers. The industry is often seen as an early indicator of shifts in the job market as firms sometimes hire temp workers before committing to take on full-time staff.

• Hotels cut 22,600 employees.

State and local governments, which until recently had been one of the few bright spots in the job market, also cut workers in March, eliminating 12,000 positions. The federal government added 7,000 jobs.

Health care remained one of the few areas where jobs were added. Firms in that sector added 13,500 jobs in March at doctor's offices, nursing homes and for home health aids. Hospitals, however, cut 700 workers, first decline in nearly five years.