WASHINGTON (Reuters) - An unexpectedly steep 84,000 U.S. jobs were lost in August and the unemployment rate hit a five-year high of 6.1 percent, fanning worry ahead of November’s presidential vote that the economy was near recession.
The eighth straight month of job cuts underlined the weakening state of labor markets and prompted back-and-forth jibes by Democratic presidential contender Sen. Barack Obama and Republican nominee Sen. John McCain about how to help.
McCain called for more job training while Obama said tax cuts for working families and aid for states was needed. The Bush administration insisted the economy was “fundamentally sound” and that an additional stimulus program was not needed.
A total 605,000 employees have been slashed from payrolls so far this year -- nearly a quarter million in the last three months alone -- which private-sector analysts said clearly implies a heightened risk of an economic contraction.
“According to our estimates, the sharp rise in the unemployment rate over the past six months translates into a recession probability of 70 percent, which is higher than in 1990-91 and 2001,” said Harm Bandholz of UniCredit Markets in New York, referring to the two most recent recessions.
The speaker of the U.S. House of Representatives, California Democrat Nancy Pelosi, renewed a pledge to seek a second economic stimulus program to pick up from one earlier in the year that has now largely been paid out to consumers.
The intently watched Labor Department jobs report shocked financial markets because August’s losses were more than the 75,000 economists surveyed by Reuters had forecast. As well, July’s losses were revised up to 60,000 and June’s to 100,000 from a previously reported 51,000 in each month -- a total 58,000 more job declines than previously thought.
Analysts said the bleak hiring data likely means that Federal Reserve policy-makers will feel obliged to keep interest rates low for an extended period.
“The economy is clearly deteriorating,” said Gary Thayer, senior economist for Wachovia Securities in St. Louis. “We’re also seeing weakness around the globe so there’s less reason for the Fed to focus on inflation and more reason to focus on getting the economy back on its feet.”
Stock prices were lower at midday and the dollar lost value against the euro. Short-term interest rate futures, which little more than a month ago signaled a Fed rate hike was likely by year-end, shifted to suggest a small chance the central bank could lower borrowing costs this year.
August’s 6.1 percent unemployment rate was up sharply from 5.7 percent in July and was the highest since September 2003.
Stock prices were lower at midday and the dollar lost value against the euro. Short-term interest rate futures began to signal that the Fed could cut interest rates by year-end.
Some analysts said the surprisingly big jump may have partly reflected a temporary government program extending long-term jobless benefits. The aid extension may have encouraged some people who otherwise might have dropped out of the work force to list themselves as job seekers -- which is necessary to be counted as unemployed.
The August job losses were broadly based.
Some 61,000 manufacturing jobs were lost, the most for any month since mid 2003, and 8,000 more construction jobs were cut. There were 53,000 jobs eliminated in professional and business services and 4,000 in leisure and hospitality industries.
The average hours of work remained unchanged from July at 33.7 but employers cut overtime to an average 3.7 hours per week in August from 3.8.
Only a few sectors added jobs. Government payrolls increased by 17,000 in August and education and health services businesses took on another 55,000 employees.
Additional reporting by Ellen Freilich in New York, Editing by Andrea Ricci