Thread: WashPost Unemployment Rate Jumps to Five-Year High

Unemployment Rate Jumps to Five-Year High

By Neil Irwin and Heather Landy
Washington Post Staff Writers
Friday, September 5, 2008; 9:50 AM



The unemployment rate soared in August and employers slashed jobs, as a weakening in the labor market accelerated. The numbers suggest there is little good news ahead for American workers, who face deepening stress from several sides.

The jobless rate was 6.1 percent last month, up from 5.7 percent in July, the Labor Department said today. It is the highest unemployment rate in five years, and compares to joblessness of 4.1 percent one year ago.

Meanwhile, employers cut 84,000 jobs, the eighth straight month of losses and yet more evidence that businesses are cutting back. The report also revised July's jobs report to show steeper losses than previously estimated.

U.S. jobs and institutions have now eliminated 605,000 jobs this year. The number of unemployed stood at 9.4 million nationwide, and has grown 2.2 million over the past year.

Labor market conditions have been weakening throughout 2008, but had been doing so in a gradual manner. Many economists have hoped for a stabilization, or even improvement, in the economy in the second half of the year, but between the new reading on the job market and data yesterday indicating poor back-to-school sales, it doesn't appear to be happening.

That is part of a triple whammy affecting American consumers. They have less wealth, given falling home prices and a falling stock market. They can't get loans as easily to ride out the bad times, as banks and other lenders have become more cautious. And now the job market is deteriorating even worse than expected.

That hurts even those who don't lose their jobs, as they have less leverage to negotiate raises: The average weekly wage for nonmanagerial workers rose 3.3 percent in the last year, which is likely to be less than inflation during the same span.

Wall Street, which suffered one of its worst trading days of the year on Thursday, headed lower again Friday as investors took stock of the latest employment numbers. The Dow Jones industrial average had lost more than 80 points after the first minutes of trading.

The unemployment rate rose most among women (for whom jobless rose to 5.3 percent from 4.7 percent), blacks (10.6 percent from 9.7 percent), and Hispanics (to 8 percent, from 7.4 percent). There is one possible silver lining in the weaker jobless numbers: In August, unemployment benefits were extended over a longer span, which may have made people more inclined to wait before accepting a job offer.

The cuts by employers were spread widely. Manufacturers cut 61,000 jobs, reflecting less demand for goods. Retailers, dealing with skittish consumers and some bankruptcies, slashed 20,000 jobs. Professional and business services firms cut 53,000 jobs, many of them for temporary help. Even the nations hotels and restaurants, which had been strong, cut back, with the leisure and hospitality sector cutting 4,000 jobs.

One surprising semi-bright spot: The construction industry, which has been steadily slashing jobs this year, only cut 8,000 positions. Industries that added jobs were few and far between, notably those in education and health care and the government.

The poor jobs report comes amid continued concern about global economic growth. Major Asian indexes were all off by roughly 2 percent in overnight trading, while European markets had declined by around 1 percent as of midday.

Those losses were not as steep as that suffered on Wall Street Thursday, but reemphasized the combination of forces weighing on economies worldwide -- an on-going financial crisis, slowing global demand, and rising prices. The Dow Jones industrial average and the Standard & Poor's 500 index declined 2.99 percent each. Traders and portfolio managers said a drop in crude oil prices appeared to drive stocks lower in midmorning trading, but they could not point to a specific explanation for why the market continued a steady march lower to the session's close.

The blue-chip Dow index, which opened at 11,532.48, had sunk below 11,300 by lunchtime and finished at 11,188.23 for its biggest one-day decline since June 26. The S&P fell 38.15 to 1236.83.

"It's sort of a head-scratcher because I don't think there was anything that material to take [the market] down that much," said Chris Hensen, senior portfolio manager for U.S. equities at MFC Global Investment Management in Toronto.

New data on jobs and retail sales helped get stocks off to a shaky start. The Labor Department reported in the morning that the number of Americans filing new unemployment claims rose to a higher-than-expected 444,000 in the last week of August. A key measurement of retail sales, meanwhile, grew at an anemic 2 percent and indicated that shoppers are clinging to stores like Wal-Mart and Costco, where they can find basic goods at discount prices.

All the major department stores reported lower sales compared with last August at stores open at least a year. Comparable-store sales also plummeted at teen-oriented stores like Abercrombie & Fitch and Wet Seal, in what is normally the height of back-to-school season.

Speaking at a Goldman Sachs retail conference, Lowe's chief executive Robert Niblock said that 90 percent of its stores are in markets with declining home prices and that values are expected to continue to fall. Shares of the home-improvement retailer fell 3.5 percent yesterday to close at $25.77.

Through the summer, it has been hard to determine how American consumers are faring because their behavior may have been distorted by the burden of high gasoline prices and by the impact of $107 billion in federal stimulus checks that went out starting in April. With no more checks on the horizon and gas prices drifting downward in recent weeks, the August sales results offer a glimpse of the underlying weakness in Americans' buying power as home prices plummet, the job market falters and lending tightens.

"There's still a lot of economic turmoil that households are working through," said Frank Badillo, senior economist at TNS Retail Forward, a market research firm.

There had been hope that falling gas prices would mitigate the end of stimulus check spending. Prices peaked in July at $4.11 a gallon and have been steadily declining since, down 10 percent to an average of $3.68 this week. But as yesterday's retail sales data show, consumers are still facing deep strains.

Employers have cut jobs each month this year, a record economists expect to have continued in August. (That report is to be released this morning.)

With the weak job market, workers have less leverage to negotiate raises. In the year ended in July, nonmanagerial workers' average pay rose 1.6 percent, far below inflation.

Nor do Americans have as much flexibility to borrow as they did in recent years. Stung by losses on loans made in the boom years, banks and other lenders have become more cautious. For example, 80 percent of senior bank loan officers surveyed in July by the Federal Reserve said they had tightened lending standards for home equity lines of credit, a form of borrowing that helped boost sales in recent years. And the average interest rate on a 30-year, fixed-rate mortgage, which was under 6 percent in May, was 6.35 percent last week, according to Freddie Mac.

Concerns about the ongoing credit crunch have pummeled financial stocks this year. Banks and brokerages, hurt by mortgage defaults and their impact on the value of securities tied to mortgage loans, were among the biggest decliners Thursday. Citigroup fell $1.31 to $18.30, Bank of America dropped $2.36 to $30.60, and Lehman Brothers declined $1.66 to $15.28.

"If you look at what's going on in the credit markets, there's really not much improvement there, just more of the same. Maybe things get worse this quarter," Hensen of MFC said. "I would be sort of shy on them going into earnings season. I think it's going to be pretty tough on them."

Baltimore-based money manager Legg Mason tumbled $4.76 to $42.61 after Credit Suisse downgraded the stock on concerns about the possibility of additional write-downs and withdrawals. American Express fell $2.16 to $38.75 after a Lehman Brothers analyst cut his 2009 profit forecast for the credit card company.

Industrial issues including Caterpillar and General Motors also declined. Boeing, working to avert a strike by its machinists, fell $3.04 to $63.03. AK Steel fell $5.05 to $40.48 after Goldman Sachs downgraded its outlook on the steel industry.

Data released by nearly 40 retailers yesterday showed that shoppers flocked to discount stores and warehouse clubs in August, a sign that consumers' budgets remain constrained.

Sales at Wal-Mart's U.S. stores open at least a year were up 3 percent excluding fuel, once again besting rival Target, where sales fell 2.1 percent. Wal-Mart's discount division Sam's Club rose 4.2 percent, while Costco grew a strong 6 percent and BJ's Wholesale Club jumped 7.7 percent, all excluding fuel.

Specialty retailers and department stores posted dismal results, with some sacrificing sales in favor of leaner inventories and others promoting aggressively to drive up traffic. Even luxury retailers, whose customers were thought to be immune to the downturn, experienced declines, including a 0.5 percent dip at Neiman Marcus Group and a 6 percent drop at Saks.

The back-to-school season is often viewed as a bellwether for the holidays, a make-or-break time for retailers. If August is any indication, consumers are not likely to feel very festive.

"From a 30,000-foot level," Todd Slater, an analyst with Lazard Capital Markets, wrote in a research note, "the best that can be said was that the month came in less bad than had been feared."

Staff writers Ylan Q. Mui and Howard Schneider contributed to this report.


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Sure isn't looking good at all.