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unemployment line

CHRISTOPHER S. RUGABER (AP)

The U.S. unemployment rate rose to 9.8 percent in September, the highest since June 1983, as employers cut far more jobs than expected.

The report shows that the worst recession since the 1930s is still inflicting widespread pain and underscores one of the biggest threats to the nascent economic recovery: that consumers, worried about job losses and stagnant wages, will restrain spending. Consumer spending accounts for about 70 percent of America’s economy.

Most analysts expect the economy to continue to improve, but at a slow, uneven pace. Government stimulus efforts, such as the Cash for Clunkers auto rebates, likely boosted the economy in the July-September quarter, but economists worry that growth will slow once the impact of such programs fades.

“Consumers … are going to struggle to increase their income,” said Brian Fabbri, North American chief economist for BNP Paribas. “If they’re struggling, they’re not consuming. That just takes some of the legs out of recovery.”

The Labor Department said Friday that the U.S. economy lost a net total of 263,000 jobs last month, from a downwardly revised 201,000 in August. That’s worse than Wall Street economists’ expectations of 180,000 job losses, according to a survey by Thomson Reuters.

The unemployment rate rose from 9.7 percent in August, matching expectations.

If laid-off workers who have settled for part-time work or have given up looking for new jobs are included, the unemployment rate rose to 17 percent, the highest on records dating from 1994.

All told, 15.1 million Americans are now out of work, the department said. And 7.2 million jobs have been eliminated since the recession began in December 2007.

The department said 571,000 of the unemployed dropped out of the work force last month, presumably out of frustration over the lack of jobs. That sent the participation rate, or the percentage of the population either working or looking for work, to a 23-year low.

The unemployment rate would have topped 10 percent if the labor force hadn’t shrank, Fabbri said.

Older, laid-off workers are dropping out and requesting Social Security at a faster-than-expected pace, according to government officials. The Social Security Administration said earlier this week that applications for retirement benefits are 23 percent higher than last year, while disability claims have risen by about 20 percent.

Meanwhile, the number of people out of work for six months or longer jumped to a record 5.4 million, and they now make up almost 36 percent of the unemployed — also a record.

Persistent joblessness could pose political problems for President Barack Obama, who pushed through an ambitious $787 billion stimulus package in February intended to “save or create” 3.5 million jobs by the end of 2010.

“We still think the overall trend is moving in the right direction,” said Christina Romer, chair of the President’s Council of Economic Advisers. “We’re going from much larger job losses earlier this year. They are moderating. We want them to moderate more.”

Republicans note that job losses have continued despite the stimulus. “Wasteful government spending is not the solution to what ails this economy,” said Indiana Rep. Mike Pence, chairman of the House Republican caucus.

Federal Reserve Chairman Ben Bernanke said Thursday that even if the economy were to grow at a 3 percent pace in the coming quarters, it would not be enough to quickly drive down the unemployment rate. Bernanke said the rate is likely to remain above 9 percent through the end of 2010.

Besides the sagging jobs market, other potential obstacles to a smooth recovery include wary consumers, the troubled commercial real estate market, and a tight lending environment for individuals and businesses, said Eric Rosengren, president of the Federal Reserve Bank of Boston.

“These challenges will likely make the recovery rather restrained by historical standards, with subdued levels of spending and lending continuing to hold back a more rapid recovery,” Rosengren said in a speech in Boston on Friday.

Against that backdrop, key monetary and fiscal policy supports will need to be keep in place to help foster a recovery, Rosengren said.

Hourly earnings rose by a penny last month, while weekly wages fell $1.54 to $616.11, according to the government data.

The average hourly work week fell back to a record low of 33 in September. That figure is important because economists are looking for companies to add more hours for current workers before they hire new ones.

The uncertainty that surrounds the recovery has made employers reluctant to hire. The Business Roundtable, a group of CEOs from large corporations, said earlier this week that only 13 percent of its members expect to increase hiring over the next six months.

While job losses have slowed since the first quarter of this year when they averaged 691,000 a month, the cuts actually worsened last month in many sectors compared with August.

Construction jobs fell by 64,000, more than the 60,000 eliminated in August. And service sector companies cut 147,000 jobs, more than double the 69,000 in the previous month. Retailers lost 38,500 jobs, compared to less than 9,000 in August.

Government jobs fell 53,000, the report said, with local governments cutting the most.

One the bright side, temporary help agencies eliminated only 1,700 jobs, down from the previous month. Economists see temporary jobs as a leading indicator, as employers are likely to hire temp workers before permanent ones.

Full article at Associated Press

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