John Berry's "Unemployment Rate Jumps to 4.9%"
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>>>Unemployment Rate Jumps to 4.9 Percent
By John M. Berry
Washington Post Staff Writer
Friday, September 7, 2001; 1:12 PM
The nation's jobless rate unexpectedly surged to 4.9 percent last month, causing new fears that the stalled U.S. economy could continue to weaken this fall rather than improving as many forecasters have been predicting.
The Labor Department reported this morning that employment fell by nearly 1 million workers last month as the number of people without jobs who were seeking them jumped to almost 7 million. Both the unemployment rate and the number of jobless workers were the highest in about four years.
The key concern among analysts is that as companies shed workers in the face of weak sales, consumers may become increasingly worried about keeping their jobs and cut back their spending. If they did, that likely would plunge the nation into a recession because consumer purchases have been largely responsible for keeping the economy afloat so far this year, analysts said.
Investors, too, appeared concerned about the connection between jobs and spending as stock prices continued a slide that began last week. In the early afternoon, the Dow Jones industrial average was down 244 points to 9597, and the Nasdaq composite index was 22 points lower at 1684.
"There are no silver linings here," said Stuart Hoffman, chief economist for PNC Financial Services in Pittsburgh. "This is a very weak report, particularly for manufacturing with its huge drop in jobs and hours, and it again raises the question about whether we have a recession."
The Labor Department said that its monthly survey of business establishments showed that the number of workers on private and government payrolls fell by 113,000 last month, with generally small gains in some other industries and government offsetting a portion of a 141,000 loss in factory jobs. Since July 2000 manufacturing employment has plunged by more than 1 million jobs.
The unemployment rate is based on a separate survey of 60,000 American households that showed employment falling by almost 1 million last month. The household survey includes many employees that are not on a business payroll.
Hoffman and other economists stressed that last month's sharp jump in the unemployment rate did not mean that the overall economy has taken a sudden turn for the worse. The unemployment rate often moves in fits and starts and only over a period of several months can a trend in the figures be clearly identified.
For instance, the jobless rate had remained at 4.4 percent or 4.5 percent in April through July at the same time economic growth all but vanished – officially the economy grew at only a 0.2 percent annual rate in the second quarter – which left economists puzzled.
"The unemployment rate had been understated," Hoffman said. "We were all surprised that it had stayed at 4.5 for four months" while the number of people receiving unemployment benefits continued to rise.
Despite last month's bad news on the labor front, Hoffman, like most other forecasters, still expects to see growth begin to pick up soon.
"I still have a positive number for this quarter's growth, and I have been hearing better news from some companies," he said. "A box manufacturer has been telling me that business has picked up noticeably, and even people supplying the auto industry say business is better. Maybe we are rounding the bottom" of the slowdown in growth.
Ian Shepherdson, chief U.S. economist at High Frequency Economics in Valhalla, N.Y., took the same view of the jump in the jobless rate.
"The stability of the past few months made no sense at all and a correction was inevitable," Shepherdson said. "This will doubtless shock the markets, and it makes an October interest rate cut [by the Federal Reserve] more likely. But it does not change the outlook for a near-term recovery at all."
Economists generally agree that changes in employment and unemployment usually lag actual changes in the state of the economy because it takes employers time to make adjustments to the flows of orders and sales. As Shepherdson put it, "These numbers reflect the second quarter economic stall."
Since last October, the nation's jobless rate has gone up a full percentage point, though at 4.9 percent it is still well below where is has been for most of the last 30 years. Within the work force, the increase in unemployment has hit hardest at groups with the least skills – young workers, those with less education and members of minority groups, particularly blacks.
For instance, over the past year, the unemployment rate for whites has risen to 4.3 percent from 3.6 percent. For blacks the rate reached 9.1 percent last month, up from 7.9 percent in August 2000. However, for persons of Hispanic origin the increase was noticeably smaller, to 6.3 percent from 5.7 percent.
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