U.S. unemployment soars
Employers react to weak economy, cutting 415,000 jobs, most in 21 years.
NEW YORK (CNNmoney) - The U.S. unemployment rate rose sharply in October, the government said Friday, as employers cut hundreds of thousands of jobs - the most in 21 years - in response to a sharp slowdown in the world's largest economy.|
The data reflect the impact of the Sept. 11 terror attacks on an already weak U.S. economy and add pressure to President Bush, the U.S. Congress, and the Federal Reserve to find ways to stimulate growth and soften the blow.
"It's not good news for America," Bush told reporters, and he urged Congress to "extend and expand" unemployment benefits and to quickly pass an economic stimulus package that will "cause the job base to firm up and expand."
The Labor Department reported that the unemployment rate rose to 5.4 percent in October from 4.9 percent in September. Employers cut 415,000 jobs - the biggest number since 460,000 in May 1980 - compared with 213,000 in September. Economists surveyed by Briefing.com expected an unemployment rate of 5.2 percent and job cuts of 300,000.
"These numbers show more fully the impact of the attacks of Sept. 11 on our country," said Labor Secretary Elaine Chao, who added, "We had been anticipating these numbers."
The news comes just ahead of Tuesday's meeting of Fed policy makers, who will almost certainly cut short-term interest rates for the 10th time this year to keep consumers spending.
"These numbers reinforce our case for a [half-percentage-point] cut by the Fed," said Salomon Smith Barney economist Melanie Jani.
U.S. stocks shrugged off the bad data to trade higher at midday, and U.S. Treasury bond prices were mostly lower.
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Job cuts were already mounting even before September's terror attacks, but a drop in demand in the wake of those attacks made the situation worse, and employers - particularly in the travel industry - accelerated the pace of layoffs.
To buoy consumer confidence, the Federal Reserve has cut its target for short-term interest rates nine times this year - twice since the attacks - to 2.5 percent, their lowest level since 1962. The Fed is widely expected to cut rates again after its policy meeting on Tuesday, while Congress is trying to craft an economic stimulus package.
Still, most economists expect a recession in the U.S. economy, commonly defined as two consecutive quarters of shrinking gross domestic product (GDP). Third-quarter GDP was slightly negative, and economists expect the fourth quarter to be much worse.
Though many economists also think the economy will turn around by early 2002, unemployment is a lagging indicator and will probably continue to rise even as the economy recovers.
"We're headed to around 6.5 percent sometime in the first half of next year," said Henry Willmore, chief economist at Barclays Capital.
The Labor Department also said workers' average hourly earnings rose by 1 percent to $14.47 from $14.45 in September, meaning inflation pressures are still low.
"There's no inflationary pressure whatsoever," said Banc One Investment Advisors chief economist Anthony Chan.
Leading the declines in payroll were the manufacturing sector, which shed 142,000 jobs, and the services sector, which lost 111,000 jobs.
As further evidence of manufacturing weakness, the Commerce Department reported that factory orders fell 5.8 percent in September to $313.15 billion, compared with a 0.1 percent drop in August. Economists surveyed by Briefing.com expected orders to fall 5.0 percent.
Leading the decline were orders for transportation, computer and electrical equipment.
Manufacturing has been in a recession for 15 months and has lost more than a million jobs this year, but the decline in services demonstrates how September's terror attacks turned a narrow economic slowdown into a broad recession.
"The number of job losses in the retail and service sector as well as the hotel industry is very distressing and really does demonstrate the role that Sept. 11 played in increasing unemployment," Heather Boushey, a labor economist at the Economic Policy Institute, told CNNfn's Before Hours program.
The transportation sector lost 56,000 jobs, led, not surprisingly, by air transportation, which lost 42,000 jobs. But airlines announced several thousand job cuts in the days after the attacks, so that number should worsen in the coming months.