U.S. job losses accelerated last month and the unemployment rate climbed to the highest level since 1983, stark reminders of how the worst financial crisis in a generation may undermine consumer spending and economic growth in the months ahead.
Today’s Labor Department figures underscore forecasts for the Federal Reserve to keep its benchmark interest rate near zero through next year, and may spark calls for stronger government efforts to shore up jobs. The dollar tumbled against the yen and euro, while stocks slid before recouping gains.
“You will see the economy pulling back,” Richard Yamarone, head of economic research at Argus Research Corp. in New York and most accurate forecaster surveyed for the payrolls loss, said in a Bloomberg Television interview. Payrolls may not return to their previous peak for years to come, he added.
Payrolls dropped by 263,000 in September, exceeding the median forecast in Bloomberg’s survey, with losses extending from cash-strapped state and local governments to retailers to builders, today’s report showed. The jobless rate rose to 9.8 percent from 9.7 percent in August, while working hours matched a record low.
The Standard & Poor’s 500 Index was little changed from yesterday’s close at 1,029.31 as of 10:42 a.m. in New York after dropping as much as 1 percent. Ten-year Treasury yields rose to 3.20 percent from 3.18 percent late yesterday. The dollar sank 0.6 percent to 89.09 yen.
Factory Orders
A Commerce Department report today showed that orders placed with factories fell unexpectedly in August, restrained by long-lasting items such as commercial aircraft and construction machinery. Bookings fell 0.8 percent after a revised 1.4 percent increase in July that was larger than previously estimated. Excluding transportation equipment, orders rose 0.4 percent.
Fed Chairman Ben S. Bernanke yesterday said economic growth may not be strong enough to “substantially” bring down unemployment, indicating the central bank will be slow to drain the trillions of dollars it’s pumped into the economy. UAL Corp. is among companies cutting jobs on concern spending will fade as government stimulus wanes.
“I certainly don’t think we can afford to withdraw the stimulus, without it we’d probably be looking at uglier numbers,” Chris Low, chief economist at FTN Financial in New York, said in a Bloomberg Television interview. “What we are looking at is the lack of small-business job creation that typically marks the beginning of an economic recovery.”
‘Disappointing’ Report
September’s losses bring total jobs lost since the recession began in December 2007 to 7.2 million, the biggest decline since the Great Depression.
Payrolls were expected to drop 175,000, the median of 84 estimates in a Bloomberg News survey of economists. Forecasts ranged from decreases of 260,000 to 100,000. Job losses peaked at 741,000 in January, the most since 1949. The September unemployment rate matched the median projection.
Revisions subtracted 13,000 from payroll figures previously reported for August and July.
The bigger-than-forecast decline in September and the jump in the jobless rate are “disappointing,” Christina Romer, President Barack Obama’s chief economist, said today in a Bloomberg Television interview.
Asserting that it was important not to put too much emphasis on any one number, Romer, who heads the White House’s Council of Economic Advisers, said the administration was focusing on the overall trend of a slowing in job losses, which showed “we’re moving in a good direction.”
Annual Revisions
The Labor Department today also published its preliminary estimate for the annual benchmark revisions to payrolls that will be issued in February. They showed the economy may have lost an additional 824,000 jobs in the 12 months ended March 2009. The data currently show a 4.8 million drop in employment during that time.
The projected decrease was three times larger than the historical average, the Labor Department said. Most of the drop occurred in the first quarter of this year, probably due to an increase in business closings, the government said.
Today’s report showed factory payrolls fell 51,000 after decreasing 66,000 in the prior month. Economists forecast a drop of 52,000. The decline included a drop of 3,500 jobs in auto manufacturing and parts industries.
Auto Industry
General Motors Co. this week said it would close the Saturn brand after Penske Automotive Group Inc. broke off discussions to buy the unit. Saturn dealers will have until October 2010 to wind down operations. The Detroit-based automaker said in June a Saturn sale would have saved 13,000 jobs and 350 dealerships.
GM had called back some workers after the government’s “cash-for-clunkers” plan cut further into inventories already diminished during the bankruptcy shutdown.
Sales of cars and light trucks plunged last month after the $3 billion incentive plan expired in late August. Vehicles sold at a 9.2 million annual pace in September, down from a 14.1 million annual pace in August.
Payrolls at builders dropped 64,000 after decreasing 60,000. Financial firms decreased payrolls by 10,000, after a 25,000 decline the prior month.
Service industries, which include banks, insurance companies, restaurants and retailers, subtracted 147,000 workers after falling 69,000. Retail payrolls decreased by 38,500 after a 8,800 drop.
Government Jobs
Government payrolls decreased by 53,000 after falling 19,000 the prior month.
Economists surveyed by Bloomberg last month projected the jobless rate will reach 10 percent by late 2009 and average 9.7 percent for all of next year even as the economy expands at an average 2.6 percent pace in the second half of this year and 2.4 percent in 2010.
Fed chief Bernanke told lawmakers in Washington yesterday that he anticipated the jobless rate will hold above 9 percent though 2010.
While acknowledging that “economic activity has picked up,” Fed policy makers on Sept. 23 said household spending “remains constrained by ongoing job losses, sluggish income growth, lower housing wealth, and tight credit.”
Fed Bank of Boston President Eric Rosengren said the central bank and government should maintain policies to support economic growth and bring down unemployment until a self- sustaining recovery is assured.
“I’d like policy to try to stimulate the labor markets as much as possible,” Rosengren said in response to questions following a speech in Boston today. “But the reality is even with stimulated labor markets, we’re likely to see elevated unemployment for the next couple of years.”
Hours, Wages
Today’s report also showed companies cut working hours, pushing weekly earnings lower.
The average work week shrank to 33 hours in September, matching a record low, from 33.1 in the prior month. Average weekly hours worked by production workers dipped to 39.8 from 39.9, while overtime decreased to 2.8 hours from 2.9. That brought the average weekly earnings to $616.11 from $617.65.
Workers’ average hourly wages rose 1 cent, or 0.1 percent, to $18.67 from the prior month. Hourly earnings were 2.5 percent higher than September 2008, the smallest gain since 2005. Economists surveyed by Bloomberg had forecast a 0.2 percent increase from the prior month and a 2.6 percent gain for the 12-month period.
Airlines are also cutting staff. UAL’s United Airlines, the third-biggest U.S. carrier, last month furloughed 290 more pilots under a plan to trim jobs and limit labor costs, while American Airlines said it would furlough 228 flight attendants.
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