Unemployment Rate Surges to 5.4% as Businesses Slash 415,000 Jobs from Their
Payrolls
WASHINGTON -- The U.S. unemployment rate surged in October as businesses
dismissed more workers than at any time in the last 21 years, highlighting the
economic toll of the Sept. 11 terrorist attacks.
Separately, orders to U.S. factories fell for the fourth consecutive month in
September. The drop was fairly broad-based, though there were increases in
defense-related orders and semiconductors.
Nonfarm businesses cut payrolls for a fifth consecutive month in October,
putting 415,000 people out of work, the Labor Department said Friday. The job
cuts were the largest since May 1980 and helped push the unemployment rate up
by one-half of a percentage point to 5.4%, the highest level since December
1996. The increase in the unemployment rate was also the biggest in 21 years.
The government revised its September payrolls number to show a decline of
213,000, compared with its initial estimate of a 199,000 drop.
The October numbers were worse than Wall Street had expected. A consensus
forecast of 15 economists surveyed by Dow Jones Newswires and CNBC had called
for a drop in payrolls of 325,000 and an increase in the unemployment rate to
5.2%.
The report will cause economists to revise their expectations of near-term
economic growth, and likely sets the stage for a big interest-rate cut when
Federal Reserve policy makers meet next week. Most economists so far have
predicted a mild, brief recession that would end by January. But the spate of
grim economic data recently is eroding their optimism.
The Fed, analysts said, is likely to cut its target for the key overnight
federal funds rate by half a percentage point to 2% at next Tuesday's meeting.
That's twice the size of the cut investors were expecting before the release of
the October employment report.
Congress, meanwhile, will feel new pressure to quickly enact an
economic-stimulus package. The House last week narrowly approved a $100 billion
package consisting mostly of tax cuts, especially for businesses. But Senate
Democrats have shown little enthusiasm for that package, so the Senate is
instead debating a package worth between $70 billion to $90 billion that would
involve more government spending. A Senate vote on the package, however, isn't
likely for at least two weeks.
U.S. businesses want quick action, warning the economy is deteriorating
rapidly. The government said earlier this week that the economy shrank for the
first time in eight years during the third quarter, contracting by 0.4%. A key
index of consumer confidence fell to its lowest level since 1994 in October. A
key index of manufacturing activity, meanwhile, fell in October to its lowest
level since the 1991 recession.
The contraction in payrolls in October came amid a slump in "nearly every
major industry," the Labor Department said Friday.
The services-producing industry cut 241,000 jobs, the biggest cut in 18
years. That included 111,000 jobs in services alone, the largest cut on record.
The terrorist attacks hurt travel-related industries in particular.
The manufacturing industry cut 142,000 jobs, marking the 15th consecutive
month of decline. The retail industry cut 81,000 jobs. Since March, the
manufacturing industry has cut 887,000 jobs. Job losses in the private sector
have totaled 1.2 million since that month. The numbers suggest that U.S. job
losses are gradually approaching levels reached during the 1991 recession, when
1.9 million jobs were cut.
The percentage of industries reporting a net gain in employment continued to
decline. The government's one-month diffusion index, which measures that
percentage, fell to 41.1 from 42.2 in September and 54.8 a year earlier. That
index reached a low of 38.6 during the 1991 recession.
The employment report suggested that inflation risks are ebbing as the
economy slows. Average hourly wages rose two cents, or 0.1%, to $14.47 in
October.That compared with a 0.2% increase in September. The average work week
declined to 34 hours in October, down six minutes from a month earlier.
Orders to Nation's Factories Decline
Meanwhile, the Commerce Department reported factory orders fell by 5.8% to
$313.15 billion in September, compared to a revised 0.1% decline in August.
The numbers were a bit worse than anticipated. Economists predicted a 5%
decline in factory orders for the month, according to Thomson Global Markets.
September durable goods, which were reported last week, fell 8.5%.
Nondurable goods orders, the primary source of new information in the factory
orders report, slid 2.6% in September after a 0.6% gain in August.
The report is just the latest indication that the manufacturing sector
remains in a recession. Before the terrorist attacks there were signs that the
sector, which has been in a yearlong decline, was poised for a rebound.
Transportation orders fell by 15.8% in September, led by a 46.6% plunge in
nondefense aircraft and parts. Excluding transportation orders, overall factory
orders fell by 4%.
Orders for primary metals were down by 4.3% for the month, while orders for
fabricated metal products fell 5%. Orders for computers and electronic products
fell 8.4% for the month.
Defense capital goods orders rose 4.8% and defense communications equipment
orders increased 10.1%. Orders for defense aircraft and parts jumped by 42.2%.
Factory orders excluding defense orders fell 6.1%.
Factory shipments fell 4.2% in September, while unfilled orders fell 1.8%.
Factory inventories slid 0.9%.
- Joseph Rebello, Deborah Lagomarsino and Jennifer Corbett Dooren of Dow
Jones Newswires contributed to this story.
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