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U.S. unemployment jumps
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September 7, 2001: 11:03 a.m. ET
Rate hits 4.9%, highest in four years, as payrolls sink 113,000
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NEW YORK (CNNfn) - The U.S. unemployment rate jumped to its highest point in four years in August, the government said Friday, as employers cut far more jobs than private economists had expected, pointing to more weakness in the world's largest economy.
The unemployment rate rose to 4.9 percent in August from 4.5 percent in July, while employers cut 113,000 jobs outside the farm sector, compared with a revised gain of 13,000 jobs in July, the Labor Department reported. Economists surveyed by Briefing.com expected an unemployment rate of 4.6 percent and job cuts of only 45,000.
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 CNNfn's Amanda Lang takes a closer look at some of the numbers buried inside the latest unemployment report. |
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The unemployment rate was the highest since a 4.9 percent reading in September 1997.
"For those people hoping for a light at the end of the tunnel, this report reveals the tunnel is still under construction," said Anthony Chan, chief economist with Banc One Investment Advisors.
Separately, the Commerce Department reported wholesale inventories fell 0.7 percent to $299.6 billion in July, the steepest drop since a 0.9 percent decline in September 1996, compared with a revised 0.4 percent drop in June. Economists surveyed by Briefing.com expected a decline of 0.2 percent.
On Wall Street, stocks dropped sharply while Treasury bond prices rose, sending bond market yields lower, as investors bet on another cut in short-term interest rates by the Federal Reserve.
Click here for more on the Fed and rates
The Fed has cut its target for short-term rates seven times this year in a bid to keep consumers spending and prevent the slowdown from becoming a recession. Federal Reserve Chairman Alan Greenspan and other economists worry that consumers, whose spending has helped keep the economy afloat, though barely, will cut back on purchases if they fear for their jobs. Consumer spending fuels two-thirds of the economy.
"What this report means is the economy is still losing jobs, and we'll probably have another Federal Reserve (interest) rate cut, and maybe more than one," said Astrid Adolfson, economist with MCM Moneywatch.
Still, the unemployment number is a lagging indicator, and many economists expected it to continue to rise even as the economy began to recover.
"This will doubtless shock the markets, and makes an October rate cut more likely, but it does not change the outlook for a near-term recovery," said Ian Shepherdson, chief U.S. economist with High Frequency Economics Ltd. "Falling employment, rising unemployment lag activity. These numbers reflect the second quarter economic stall."
The economy was particularly sluggish in the second quarter, growing at just a 0.2 percent rate, its weakest in eight years.
Click here for more on job cuts
The unemployment rate must also catch up with the staggering number of job-cut announcements made so far this year -- 1.1 million through August, according to research firm Challenger, Gray & Christmas.
"The increase in the unemployment rate, while very large, is really a catch-up, as the rate had been stable for four months," said Bruce Steinberg, chief economist at Merrill Lynch. "This brings the unemployment rate to where we believe it should be at this point."
The beleaguered manufacturing sector lost 141,000 jobs in August, the biggest monthly drop of the year, bringing total cuts in the sector to 1 million since July 2000. The job cuts take some of the wind out of an unexpectedly positive report earlier this week on manufacturing activity from the National Association of Purchasing Management.
"That's a huge drop in manufacturing... that throws that NAPM number in a less favorable light," said James Jackson, director of fixed income at Brinson Partners.
Still, some analysts noted that the government revised its reading for July to a rise of 13,000 jobs, from a previous estimated drop of 42,000. And the sharp drop in wholesale inventories could eventually help pave the way for a pickup in production if companies start to restock shelves.
Click here for CNNfn.com's economic calendar
Also encouraging was the fact that wholesalers' sales rose 0.6 percent in July after falling in June. The inventories report seemed to confirm the belief of many analysts that businesses may be near the end of an inventory correction and are finally getting the supply of goods more in line with actual sales.
"Wholesalers had been struggling with bulging inventories through the winter and spring," said Steven Wood, economist with FinancialOxygen. "However, plunging sales had largely thwarted their efforts. July's improvement is a welcome respite in this struggle."
The closely watched stock-to-sales ratio, which measures how long it would take to deplete current inventories, dropped to 1.32 months in July from June's 1.33 months. 
- from staff and wire reports
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