Friday September 5, 08:30 PM
US jobless rate jump sparks fresh recession fears
By Rob Lever
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WASHINGTON (AFP) - US unemployment jumped to a five-year high of 6.1 percent in August as 84,000 jobs were slashed, according to a report Friday that sparked fresh fears about recession in the world's biggest economy.
The Labor Department report -- considered one of the best indicators of economic momentum -- marked the eighth consecutive month of shrinking nonfarm payrolls, and was worse than expected by private economists.
Wall Street analysts had expected a loss of 75,000 jobs and a steady unemployment rate of 5.7 percent for the month.
The agency also revised its figures from the prior two months to show a loss of 60,000 nonfarm payroll positions in July and 100,000 in June, up from earlier estimates of a drop of 51,000 in each of the two months.
The latest figures show a cumulative loss of 605,000 US jobs since the start of 2008, highlighting the woes of the world's largest economy from a horrific housing slump and credit squeeze.
"That screams recession," John Ryding at RDQ Economics said of the surging unemployment rate, which is up a full percentage point in the past two quarters. "Those numbers imply economic conditions were contractionary."
Although official data showed the US gross domestic product (GDP) grew at a robust 3.3 percent in the second quarter, many analysts say that figure was skewed by a surge in exports and helped by spending from a massive tax rebate program.
"The rapid rise in the unemployment rate points to a US recession, as such an increase has never occurred outside of one," said Peter Kretzmer, economist at Bank of America (NYSE: IKJ - news) .
Avery Shenfeld, senior economist at CIBC World Markets, said the payrolls figure indicates a weak economy teetering close to recession.
"We are looking for the turn in economic conditions and the second quarter GDP report gave a false signal that the turn had occurred," Shenfeld said.
"Taking the revisions into account and including the big rise in the jobless rate, this (payrolls data) is clearly weaker than the markets anticipated. We haven't had a recession in GDP growth but the rise in unemployment is looking as bad as it gets in a recession."
Ian Shepherdson, chief US economist at High Frequency Economics, called the report "grim," adding that "the big shock is the 6.1 percent unemployment rate," which suggests further weakness ahead
"Our forecast of a 7.0 percent peak headline (jobless) rate might now be too low," he added.
The report comes less than two weeks ahead of a meeting of Federal Reserve policymakers on interest rates.
The current base rate of 2.0 percent is considered stimulative but officials say troubles in the banking sector make credit difficult. Some Fed officials have said the next move is likely a rate hike in view of inflation pressures but analysts say the central bank is unlikely to move to choke off economic activity.
"This was a surprisingly weak employment report that raises all sorts of questions about the economy," said Joel Naroff at Naroff Economic Advisors.
"But before we go there, keep in mind that the August numbers sometimes are revised quite a bit ... But on face value, this has to raise concerns that third and fourth quarter growth could be quite soft."
Naroff said that with the unemployment rate now above six percent, "I don't think too many (Fed) members will be voting for a rate hike at the September 16 meeting."
Sal Guatieri, economist at BMO Capital Markets, said the report suggests more weakness ahead in employment.
"The downward revision of the past few months is quite worrisome, and clearly in line with our view that the economy is virtually in recession," Guatieri said.
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