Unemployment in U.S. Increases to 8.5%, 25-Year High
April 3 (Bloomberg) — The U.S. unemployment rate jumped in March to
the highest level since 1983 and service industries shrank at a faster
pace, indicating the economy remains trapped in what’s likely to be the
longest recession since the 1930s.
Federal Reserve Vice Chairman Donald Kohn said both the Obama
administration and central bank must remain “flexible and open” to
further measures because the economy and financial markets aren’t “out
of the woods yet.” The labor-market rout will make it tougher for
President Barack Obama to follow through on his pledge to save or
create 3.5 million jobs.
The economy lost 663,000 jobs in March, bringing losses since the
slump began to about 5.1 million, the worst in the postwar era, Labor
Department figures showed in Washington. The 8.5 percent jobless rate
was consistent with the forecasts of 79 economists surveyed by
Bloomberg News. The Institute of Supply Management’s non-manufacturing
index unexpectedly dropped.
“We could continue to see a few more months of really bad employment
numbers before it starts to ease,” said Nariman Behravesh, chief
economist at IHS Global Insight in Lexington, Massachusetts. Behravesh
projected the jobless rate will peak between 10 percent and 10.5
percent in early 2010. “We aren’t there yet, but we are getting closer
to a bottom,” he said.
Treasuries, Stocks
Treasuries slumped after the jobs report was no worse than what
economists had forecast, with benchmark 10-year note yields rising as
2.84 percent at 11:42 a.m. in New York, up from 2.77 percent late
yesterday. The Standard & Poor’s 500 Stock Index fell 0.3 percent
to 831.82.
Job cuts have been spreading from manufacturers such as Johnson
Controls Inc. and Dana Holding Corp. to service providers like
International Business Machines Corp. and even the U.S. Postal Service.
In addition to cutting jobs, companies also reduced hours for those
still on payrolls. The average number of hours worked fell to 33.2 per
week, down six minutes from February and the fewest since records began
in 1964.
Revisions subtracted 86,000 workers from January payrolls while February’s drop of 651,000 was not revised.
The last time the unemployment rate was at 8.5 percent was in
November 1983, when the economy was recovering from the 1981- 82
recession that pushed the rate to almost 11 percent. Then Fed Chairman
Paul Volcker boosted interest rates to quell soaring inflation
following the 1970s fuel crisis.
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Payroll Forecast
Payrolls were forecast to drop by 660,000, according to the median
of 80 economists surveyed by Bloomberg News. Estimates ranged from
losses of 525,000 to 750,000. Forecasts for the jobless rate ranged
from 8.2 percent to 8.7 percent.
“The hope and expectation is that things will get a little less dire
in the second quarter as various stimulus efforts kick in,” said Ethan
Harris, co-head of U.S. economic research at Barclays Capital Inc. in
New York, who used to work at the Fed.
Today’s report showed factory payrolls fell by 161,000 after
declining 169,000 in the prior month. Economists forecast a drop of
160,000. The decrease included a loss of 17,500 jobs in auto
manufacturing and parts industries.
The manufacturing slump that began more than a year ago may
intensify should General Motors Corp. be forced into bankruptcy,
economists said. As many as 1 million additional auto-industry jobs may
be lost and unemployment would climb to 11 percent, said Joseph
LaVorgna, chief U.S. economist at Deutsche Bank Securities in New York.
Auto Slump
The auto slump has already rippled through the industry. Johnson
Controls, a maker of car interiors and batteries, said last month it
will shut 10 factories and cut about 4,000 jobs. Dana, the truck-axle
manufacturer that exited bankruptcy in 2008, said it will boost its
payroll reduction to 5,800 this year, 800 more than previously
announced.
“We are taking the difficult actions necessary to survive,” Dana’s
Chief Executive Officer John Devine said in a March 16 statement.
Service industries, which include banks, insurance companies,
restaurants and retailers, cut 358,000 workers after a 366,000 decline
in February. Financial firms cut payrolls by 43,000, after a 44,000
decrease the prior month. Retail payrolls decreased by 47,800 after a
50,800 drop.
The ISM’s services index, which covers almost 90 percent of the
economy, fell to 40.8, the lowest level of the year, from 41.6 the
prior month, according to the Tempe, Arizona-based group. Readings
below 50 signal contraction.
The measure was projected to increase to 42, according to the median
forecast in a Bloomberg News survey of 67 economists. Estimates ranged
from 38 to 45.
Fewer Orders
The ISM index of new orders fell to 38.8 from 40.7 the prior month, and its gauge of employment dropped to 32.3 from 37.3.
For many Americans, this employment slump has been an unfamiliar
experience. Sarah Opple, 42, was fired in February from a sales
position at Gaylord Hotels in Chicago after holding a series of jobs in
the hospitality industry since she was 17 years old. “It’s more real to
me now,” she said in a March 26 interview. “This recession is way more
tangible than the others. It makes everyone feel they could be next.”
Since taking office Jan. 20, Obama has enacted a series of measures
aimed at stemming the recession. He signed into law a $787 billion
stimulus plan on Feb. 17 that included spending on infrastructure
projects to boost hiring.
The Treasury Department is also moving to repair the damaged
financial system and lower record foreclosures, while the Fed is
flooding markets with cash to boost borrowing and spending.
To contact the reporter on this story: Bob Willis in Washington at bwillis@bloomberg.net