U.S. jobless rate hits 14-year high as losses mount

A customer pushes her shopping cart past a display at a Wal-Mart Supercenter in Rogers, Arkansas June 5, 2008.

WASHINGTON (Reuters) - The U.S. jobless rate shot to a 14-1/2-year high last month as employers slashed 240,000 positions, a situation President-elect Barack Obama called sobering as he vowed to tackle economic troubles swiftly.

Some 1.2 million U.S. jobs have been lost so far this year, with more than half of those cut in the past three months alone, a Labor Department report showed on Friday.

The unemployment rate ratcheted up a steep four-tenths of a percent to 6.5 percent in October, the highest since March 1994, as employment dropped for a 10th straight month.

"We are facing the greatest economic challenge of our lifetime and we're going to have to move swiftly to resolve it," Obama told reporters in Chicago after meeting with advisers. He said he wants fiscal measures to spur economic activity passed "sooner rather than later.

In addition to reporting a bigger-than-expected drop in employment in October -- economists had forecast a 200,000 fall in jobs, the department said 179,000 more jobs were lost in the prior two months than earlier believed.

The economy shed 284,000 jobs in September, the most since November 2001, shortly after the September 11 attacks on the United States, and 127,000 jobs were lost in August.

"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.

While the data was bleak, it was not as grim as some had feared. While the dollar fell, U.S. stocks .DJI rose. The blue-chip Dow Jones industrial average .DJI ended 248 points, or about 2.9 percent, higher after two days of sharp losses.

KICKING THE ECONOMY

Michael Feroli, an economist with JPMorgan Chase in New York, said the surprising jobs weakness in August and September suggests the economy fell 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.

Fears about job security have led U.S. consumers to cut spending, and that has reverberated around the globe, with China and other low-cost manufacturers feeling the impact of slacker American demand.

On Capitol Hill, Democratic Sen. Charles Schumer of New York described the job numbers as "shocking" and said they call for "a strong, deep and effective stimulus package."

General Motors Corp (GM.N), which along with other domestic carmakers is pleading for government help, said it had a $4.2 billion operating loss in the third quarter.

In a telephone interview, U.S. Commerce Secretary Carlos Gutierrez said the economy "will go through several difficult months," but by the time Obama takes office in January a Treasury plan to buy bad assets from banks should be working. He predicted that will ease some economic pressures.

The Bush administration is "willing to listen to ideas (on stimulus) but most of what we've heard called stimulus doesn't meet our definition of stimulus," Gutierrez said.

Stimulus measures should be targeted to have immediate effect rather than designed for long-term impact like road building and other infrastructure projects, he added.

PAIN WIDESPREAD

The U.S. Federal Reserve has cut benchmark interest rates to a low 1 percent over the last 13 months in an effort to buffer the economy from the widening credit crisis, and financial markets expect rates to go lower still.

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 construction shed 49,000 jobs last month, the sector's 16th straight monthly loss. It also showed a whopping 90,000 manufacturing jobs were cut -- reflecting in part 27,000 striking workers at Boeing Co and marking the 28th straight 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.

(Additional reporting by Doug Palmer in Washington, Caren Bohan and Ros Krasny in Chicago and Burton Frierson in New York; Editing by James Dalgleish)