Washington: Employers cut more jobs than forecast last month and the unemployment rate rose to a 26-year high, calling into question the sustainability of the economic recovery.
The unemployment rate rose to 9.8%, the highest since 1983, from 9.7% in August, the US labour department said on Friday in Washington. Payrolls fell by 263,000, following a revised 201,000 decline the prior month that was less than previously reported.
US Federal Reserve chairman Ben Bernanke on Thursday said the expansion may not be strong enough to “substantially” bring down unemployment, indicating the central bank will be slow to drain the trillions of dollars it’s pumped into the economy. UAL Corp. is among companies still cutting jobs on concerns spending will fade as government stimulus wanes.
“Only profitable firms will hire workers and we don’t have any assurance that firms will be profitable for the next year,” said Guy LeBas, chief economist at Janney Montgomery Scott Llc in Philadelphia. “Consumer spending is going to be constrained by weaker incomes.”
Stock index futures slid after the report, extended earlier losses, and US treasury securities rose. The contract on the Standard and Poor’s 500 index was down 1.2% to 1,015.1 at 8.51am in New York. The yield on the benchmark 10-year note fell to 3.14% from 3.18% late on Thursday.
Revisions subtracted 13,000 from payroll figures previously reported for August and July.
Payrolls were forecast to drop 175,000 in September after a 216,000 decline initially reported for August, according to the median of 84 economists surveyed by Bloomberg. Estimates ranged from decreases of 260,000 to 100,000. Job losses peaked at 741,000 in January, the most since 1949.
The jobless rate was projected to rise to 9.8%. Forecasts ranged from 9.6% to 9.9%.
The labour department on Friday also published its preliminary estimate for the annual benchmark revisions to payrolls that will be issued in February. It showed the economy may have lost an additional 824,000 jobs in the 12 months ended March. The data currently shows a 4.8 million drop in employment during that time.
The projected decrease was three times larger than the historical average, the labour department said. Most of the drop occurred in the first quarter of this year, probably due to an increase in business closings, the government said.
September’s losses bring total jobs lost since the recession began in December 2007 to 7.2 million, the biggest decline since the Great Depression.
Friday’s report showed factory payrolls fell 51,000 after decreasing 66,000 in the prior month. Economists forecast a drop of 52,000. The decline included a drop of 3,500 jobs in auto manufacturing and parts industries.
General Motors Co. (GM) this week said it would close the Saturn brand after Penske Automotive Group Inc. broke off discussions to buy the unit. Saturn dealers will have until October 2010 to wind down operations. The Detroit-based auto maker said in June a Saturn sale would have saved 13,000 jobs and 350 dealerships. GM had called back some workers after the government’s “cash-for-clunkers” plan cut further into inventories already diminished during the bankruptcy shutdown.
Sales of cars and light trucks plunged last month after the $3 billion (Rs14,370 crore today) incentive plan expired in late August. Vehicles sold at a 9.2 million annual pace in September, down from a 14.1 million annual pace in August.
Payrolls at builders dropped 64,000 after decreasing 60,000. Financial firms decreased payrolls by 10,000, after a 25,000 decline the prior month.
Service industries, which include banks, insurance companies, restaurants and retailers, subtracted 147,000 workers after falling 69,000. Retail payrolls decreased by 38,500 after a 8,800 drop.
Government payrolls decreased by 53,000 after falling 19,000 the prior month.
Economists surveyed by Bloomberg last month projected the jobless rate will reach 10% by late 2009 and average 9.7% for all of next year even as the economy expands at an average 2.6% pace in the second half of this year and 2.4% in 2010. Bernanke told lawmakers in Washington on Thursday that he anticipated the jobless rate will hold above 9% though 2010.
While acknowledging that “economic activity has picked up”, Fed policymakers on 23 September said household spending “remains constrained by ongoing job losses, sluggish income growth, lower housing wealth, and tight credit”.
Friday’s report also showed the average work week shrank to 33 hours in September, matching a record low, from 33.1 hours in the prior month. Average weekly hours worked by production workers dipped to 39.8 hours from 39.9 hours, while overtime decreased to 2.8 hours from 2.9 hours. That brought the average weekly earnings to $616.11 from $617.65.
Workers’ average hourly wages rose 1 cent, or 0.1%, to $18.67 from the prior month. Hourly earnings were 2.5% higher than September 2008, the smallest gain since 2005. Economists surveyed by Bloomberg had forecast a 0.2% increase from the prior month and a 2.6% gain for the 12- month period. Airlines are also cutting staff. UAL’s United Airlines, the third biggest US carrier, last month furloughed 290 more pilots under a plan to trim jobs and limit labour costs, while American Airlines said it would furlough 228 flight attendants.