Job Losses Rise
The unemployment rate shot to a 14-1/2 year high last month as employers slashed jobs by an unexpectedly steep 240,000, suggesting President-elect Barack Obama will face a deep recession when he takes office.
The Labor Department said on Friday the jobless rate rose a steep four-tenths of a percent to 6.5 percent in October, the highest since March 1994, and that job losses in September and August were deeper than previously thought.
So far this year 1.2 million U.S. jobs have been lost, with 651,000 in the past three months alone as the slide in the national labor market picked up in intensity.
"We have entered the phase of serious recession conditions. Unfortunately we will encounter more of this," said Richard DeKaser, chief economist for National City Corp in Cleveland.
Goldman Sachs economist Jan Hatzius said the data implied the U.S. economy was sinking into a deep recession in which the jobless rate could climb to 8.5 percent by the end of 2009.
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About 284,000 jobs were shed in September, the most since November 2001, shortly after the September 11 attacks on the United States, and 127,000 were lost in August. In all, 179,000 more jobs were cut in August and September than previously thought.
Michael Feroli, an economist with JPMorgan Chase, said the surprising weakness in August and September suggests the economy headed into recession even before the worst of the credit crisis hit.
"Whereas it had been thought the financial crisis pushed a teetering economy over the edge, it now looks like that crisis kicked an economy that was already down," Feroli said.
Fear about job security has led U.S. consumers to cut spending, and that has reverberated around the globe, with China and other low-cost goods producers feeling the impact of slacker American demand.
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In a separate report, the Commerce Department said wholesale inventories dipped in September, but sales were off for a third straight month and a stocks-to-sales gauge suggested businesses were holding more inventory than desired.
The National Association of Realtors said pending sales of existing U.S. homes dropped 4.6 percent in September because of tighter credit and worsening economic conditions.
The jobs report showed the construction industry shed 49,000 jobs last month, the 16th straight monthly loss.
It also showed a whopping 90,000 manufacturing jobs were cut in October -- reflecting in part 27,000 striking workers at Boeing Co and marking the 28th consecutive month in which factory employment has fallen.
Earlier this year, job losses had been concentrated on the goods-producing side of the economy. But the latest data showed the pain spreading further into the vast services sector.
Service industries cut 108,000 jobs last month, on top of 201,000 lost in September.
Why the jobs report is so ominous
What gives today's October employment report an unmistakably ominous twist is the almost uniformly downbeat message from nearly all of its components. No matter how deep one digs into the specifics of the data, it is hard to identify any encouraging news. Not only did the economy lose a massive 240,000 jobs in the non-farm sector, but the previously reported declines of 159,000 in September and 73,000 in August were revised sharply lower to 284,000 and 127,000 respectively as well. As a result, the economy has now lost a total of 1.2 million jobs since the beginning of the year, with nearly half of those losses occurring in the last three months alone, pointing to an acceleration in the pace of erosion in labor markets.
Losses were widespread in all of the key categories except the government sector, which gained 23,000 last month. Manufacturing jobs were down by 90,000 for a cumulative decline of over 200,000 in the last three months, while construction jobs fell by 49,000 last month, for a total decline of over 100,000 in the last three months. Jobs in the retail trade sector declined by 38,000, down by 111,000 in the last three months. That downbeat message goes on and on in most of the other categories.
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There is little chance that the bleak numbers are a statistical fluke. Here's why: Since the payroll data and the unemployment rate are the results of two separate surveys conducted by the Bureau of Labor Statistics (http://www.bls.gov/), those two series sometimes send a mixed message about the state of labor markets for a particular month because of the statistical noise associated with the methodology of those surveys. However, in a dramatic demonstration of consistency in October, both the jump in the rate and the sharp declines in payrolls sent a very powerful message that labor markets are deteriorating precipitously.
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Any doubt that we're officially in a recession can be put aside.