Jobless rate soars to 6.1%
Unemployment surges to 5-year high as employers cut workers for eighth straight month. Total job losses for 2008: 605,000.
NEW YORK (CNNMoney.com) -- The unemployment rate soared to a nearly five-year high in August as employers trimmed jobs for the eighth straight month, the government reported Friday.
The unemployment rate rose to 6.1%, the highest level since September 2003. That's up from 5.7% in July and 4.7% a year ago.
In addition, the economy suffered a net loss of 84,000 jobs in August, according to the U.S. Department of Labor, compared to a revised reading of a 60,000 job loss in July.
The U.S. economy has lost 605,000 jobs so far this year.
The jobs report immediately drew comment from the presidential candidates as well as the Bush administration.
The White House pointed to other economic readings, including last week's gross domestic product report. It showed second quarter growth jumping to a 3.3% annual rate, helped by economic stimulus checks and strong exports.
"While these (jobs) numbers are disappointing, what is most important is the overall direction the economy is headed," said the White House statement.
But the campaign of Democratic presidential candidate Barack Obama said the report points out the failure of Republican policies.
"John McCain showed last night that he is intent on continuing the economic policies that just this year have caused the American economy to lose 605,000 jobs," Obama said in a statement. "John McCain's answer is more of the same: $200 billion in tax cuts to big corporations and oil companies, and not one dime of tax relief to more than 100 million middle-class families."
The McCain campaign argued that Obama's economic policies would cause more job losses in the future.
"Sadly there are those who believe that to grow this economy we must raise taxes, impose costly new mandates and isolate America from the global economy," McCain said in a statement. "When our economy is hurting, the last thing we should do is raise taxes as Barack Obama plans to do and has done."
Both numbers in the August report surprised experts. Economists surveyed by Briefing.com had forecast the unemployment rate would remain unchanged from the July reading and that payrolls would fall by 75,000 jobs.
Manufacturing lost 61,000 jobs, while construction employment fell by 8,000. But the job losses were widespread and went beyond those two troubled sectors.
Retailers trimmed 20,000 jobs despite the back-to-school shopping season, which for many stores is typically second in sales only to the holiday period. Business and professional services - a broad category that includes industries such as accountants, consultants and legal services - lost 53,000 workers. Leisure and hospitality cut 4,000 jobs.
The few sectors showing gains were government as well as education and health services, which gained 72,000 between them to temper the losses elsewhere.
"Job losses are still mild by recession standards, but the losses are relentless and they are accumulating," said Bob Brusca of FAO Economics. "If job growth had paced with population growth during this year, it would have meant 1.3 million new jobs would have been created. Instead 605,000 were lost. That means about 2 million fewer people are working than if the economy were on a steady path. And that's a big number."
But while economists generally study the payroll numbers most closely, it's the unemployment rate that registers with most Americans when they think about the labor market.
The jump is likely to be a new blow to consumer confidence, which had just started to show gains from earlier lows due to declining gasoline prices. Confidence could also be hurt by another report Friday from the Mortgage Bankers Association showing a record 1.2 million home foreclosures during the second quarter.
And falling consumer confidence could put a brake on spending and in turn drag down the economy.
"If consumer spending doesn't hang in there in the fourth quarter, we're of course going to have a higher unemployment rate and maybe more than the 50,000 to 75,000 monthly job losses we've been seeing," said Tig Gilliam, chief executive of Adecco Group North America, a unit of the world's largest employment firm.
Mark Vitner, chief economist at Wachovia, said that the unemployment rate might have been lifted higher an extension of long-term unemployment benefits that took effect in July. Some discouraged job seekers who had been out of work more than 26 weeks may have looked for work again in the month in order to collect the benefits once again. But Vitner said even without that impact, unemployment probably would have jumped to about 5.9%.
And recent filings for initial jobless benefits by the newly unemployed is now running at more than 400,000 a week, a level typically associated with a recession.
"You don't have to be an economist to know the economy is weak right now," Vitner said. "Obviously there's some real pain out there."
Gilliam and many economists had been expecting the unemployment rate would hit 6% late this year or early next year.
"I'm not forecasting 7% unemployment, but we're weighing what 6% unemployment now means going forward," Gilliam said.
The unemployment rate doesn't tell the whole picture about how difficult the job market has become. It only counts those who looked for work during the month; it excludes the unemployed who want jobs but have stopped looking for work. And it also doesn't count those who want full-time jobs but can only find part-time positions.
The so-called underemployment rate, which includes those two other groups, rose to 10.7% - the highest reading since 1994.
The pain was widespread in different sectors of the work force. Those with college degrees were better off than the population as a whole. But the number of educated workers without jobs jumped 15% in the month to 1.2 million, the third highest total since the Department of Labor started tracking that number in 1992.
Despite the widespread weakness in the report, wages actually edged up faster than expected. The average hourly wage was up 7 cents in the month to $18.14. The previous month's rise was also revised slightly higher.
Still, the average hourly wages have only increased 3.6% in the last 12 months, well below the 5.6% rise in prices shown in the July Consumer Price Index. That means the typical worker's wages are not keeping up with prices.
The Federal Reserve's most recent economic forecasts had projected annual unemployment in the range of 5.5% to 5.7% this year, and between 5.3% and 5.8% next year. Even its worst case scenario put the upper end of the unemployment range at 5.8% this year and 6.1% next year.
The consensus is that the Fed will leave its key overnight lending rate, it's primary tool for spurring economic growth, unchanged through the end of the year. Some policymakers at the central bank have been pushing for higher rates to fight inflation. Many observers expect that the Fed's next change will be higher. 
