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Unemployment tops 6% for first time in five years

Maura Reynolds
Los Angeles Times  —  9/05/2008 11:20 am

WASHINGTON -- The unemployment rate spiked to 6.1 percent in August, much higher than anticipated and the first time in five years that it has topped 6 percent, the Labor Department reported Friday.

The economy has shed jobs for eight straight months, the data showed, with the losses averaging 76,000 per month since the beginning of the year. The economy must create about 100,000 jobs a month just to keep pace with population growth.

"Over the past 12 months, the number of unemployed persons has increased by 2.2 million and the unemployment rate has risen by 1.4 percentage points, with most of the increase occurring over the past four months," the department reported.

July's unemployment rate was 5.7 percent, and the August report is significantly worse than most economists had expected. The stock market sank on the news: The Dow Jones industrial average, which lost 344 points on Thursday, dropped another 80 in the first hour of trading.

"The private sector continues to bleed jobs, and there is no sign from the corporate sector that this is going to end any time soon," said Joshua Shapiro, U.S. economist with MFR Inc., a forecasting firm in New York.

The last time the unemployment rate was above 6 percent was in the fall of 2003, as the economy was recovering from recession.

Economists said the deepening number of job losses is a clear sign that the economy's troubles are far from over.

"The report confirms that the improvement in GDP growth to 3.3 percent in the second quarter was just a head-fake," said Nigel Gault, chief U.S. economist with Global Insight, an economics forecasting firm in Lexington, Mass. "We expect growth to slow in the current quarter to just over 1% and then turn negative in the fourth quarter."

Dean Baker, co-director of the Center for Economic and Policy Research in Washington, noted that the steepest declines were in the manufacturing sector, driven by deep cutbacks in the auto industry and in temporary employment services.

"Since temporary employment is often a harbinger of future employment trends, this is not good news," Baker said. "This report shows that the labor market is in a recessionary state."

"There's no question that the labor market is not as strong as we'd like and we'd like to return to strong job growth," White House press secretary Dana Perino told reporters. She said that not all economic news is as bleak: "There are other numbers that show that the economy is starting to show some signs of growth," Perino said, citing the second-quarter gross domestic product growth and rising productivity.

Economists consider unemployment a major factor in determining whether the economy is in recession, and the report was expected to intensify debate over economic policy.

Democrats argue that a second package of stimulus payments is needed to give the economy a jolt. Republicans accuse Democrats of planning to raise taxes, which they say would damage the economy more.

"Americans are hurting and we must act to create jobs," Republican presidential nominee John McCain said in a statement. "Unfortunately, while millions of Americans are gathering around the kitchen table and questioning how they can keep their homes, pay their medical bills and afford their children's education, Washington has failed to act."

Sen. Charles Schumer, D-N.Y., chairman of Congress' Joint Economic committee, put it another way. "If there is a bright spot in today's bleak jobs news, it is that we only have four jobs reports left before the Bush stewardship of this economy is finished," Schumer said.

Maura Reynolds
Los Angeles Times  —  9/05/2008 11:20 am