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News > Economy
U.S. unemployment jumps
May 4, 2001: 2:05 p.m. ET

Rate hit 4.5% in April; number of jobs lost steepest since 1991
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NEW YORK (CNNfn) - Unemployment jumped to a 2-1/2-year high in the United States last month as employers cut the biggest number of jobs since the end of the last recession, the government reported Friday, the latest sign of severe weakness in the world's largest economy.

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Businesses cut a stunning 223,000 jobs outside the farm sector in April -- the biggest one-month drop since February 1991, at the end of the last recession -- after cutting a revised 53,000 jobs in March, the Labor Department reported.

The unemployment rate jumped to 4.5 percent, the highest since October 1998, from 4.3 percent in March.

Wall Street analysts polled by Briefing.com had expected the economy to add about 25,000 jobs last month for an unemployment rate of 4.4 percent.

Most analysts said the government's data meant the Federal Reserve, the nation's central bank, almost certainly will cut rates for the fifth time this year when it meets May 15 in an effort to bolster the economy and keep it out of a recession -- if it hasn't fallen into a recession already.

"These numbers clearly tell me we have not hit bottom in the economy," Anthony Chan, chief economist at Banc One investment advisors, told CNNfn's Before Hours program. He said the economy will be weaker in the second quarter than in the first and that the Fed will cut rates again, probably by half a percentage point, at its meeting May 15. (449K WAV) or (449K AIF)

"These data indicate that the economy is slowing quickly and may now actually be in recession," said Steven Wood, chief economist with Financial Oxygen. Wood said he also expects a half-percentage-point rate cut by the Fed on May 15 and more afterward.

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Bond prices jumped on the news as traders bet more rate cuts are coming. Stocks opened sharply lower on fears about the future of corporate earnings, but later recovered as equity investors also hoped for a rate cut.

The manufacturing sector recorded 104,000 job cuts, its ninth straight month of job losses. The data contradict recent signs of hope for manufacturing, such as factory orders rising in March and the closely watched NAPM manufacturing index shrinking at a slower rate in April.

That could be all the good news for manufacturing in the short term.

"With today's report, the odds of a negative quarter of GDP (gross domestic product) growth have increased substantially," said Bill Cheney, chief economist with John Hancock Financial Services.

Though he said the jobs data were "not the end of the world," Cheney cautioned they could have a deleterious effect on consumer spending, which makes up two-thirds of the U.S. economy.

Confidence, spending could suffer

"Job losses cut directly into the spending of the newly unemployed, and indirectly tend to have a very real impact on the confidence of those who are still working," Cheney said. "If demand falls, firms will lay off more employees, and the downward spiral could put us over the edge into a bona fide recession before the Fed's actions can take effect."

In fact, many analysts polled by CNNfn.com expect the overall unemployment rate to hit 5 percent by the end of the year, though most believed Fed rate cuts will lead to economic growth in the third quarter and beyond.

Unemployment often continues to rise even after the overall economy has bottomed out.

The broad services sector lost 121,000 jobs, the first time this year the services sector lost jobs. On the brighter side, retail trade jobs rose by 41,000 jobs, and local governments added 32,000.

Perhaps, given the rate of job cut announcements in recent months, the government's job-cut data shouldn't have been too surprising.

"There's nothing surprising in this when you see day after day after day after day, 3,000, 5,000, 10,000 layoffs," said Richard Gilhooly, fixed income strategist with BNP Paribas. "So if anyone's shocked by this, they haven't been reading the newspapers for the past three months."

Just Thursday, outplacement firm Challenger Gray & Christmas released a survey showing job cut announcements topping 166,000 jobs, the fifth straight month the number of announced cuts has topped 100,000.

Among the most recent job-cut announcements: The government also said average hourly earnings, a key gauge of inflation, rose 0.4 percent in April to $14.22 an hour. That matched the gain in March and was slightly higher than the 0.3-percent gain analysts had forecast, according to Briefing.com.

The length of the average workweek was unchanged at 34.3 hours in April, slightly shorter than analyst expectations of 34.2 hours. graphic





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