October 02, 2009

US recovery effort stumbles as 263,000 jobs lost, By Rob Lever, (AFP), Oct 02, 2009

WASHINGTON — US economic recovery hopes got a rude shock Friday as official data showed job losses accelerated to 263,000 in September and the unemployment rate rose to 9.8 percent.

The Labor Department report, one of the best indicators of economic momentum, showed the critical labor market reversed course after months of improvement.

The unemployment rate was up one-tenth of a point from August and in line with most forecasts, but would have been higher if not for 571,000 people dropping out of the labor force.

But payroll losses were far worse than expectations for a loss of 175,000 jobs. The number of job cuts rose sharply after a revised loss of 201,000 in August.

"This confirms that this is going to be a frustratingly slow recovery and it's not going to make a lot of people happy for a long time," said Robert MacIntosh, economist at Eaton Vance.

"We've had some recovery by rebuilding inventories and we had a one-time boost with 'cash for clunkers' (auto buying incentive) but all that did was take sales from future months.

"This economy needs to grow on its own and it's going to take a long time."

Cary Leahey, senior economist at Decision Economics said that "what makes it disappointing is that every major component is weak.

"Job gains have stalled, the unemployment rate remains high and the smaller parts of the report were also disappointing," Leahey said.

The report showed the average workweek in the private sector edged down by 0.1 hour while wages were up a tepid 0.1 percent, or 2.5 percent annualized.

Leahey said these details show weakness going forward which will prompt the Federal Reserve to keep interest rates near zero.

"The Fed is going to see the rate of change in earnings has slowed, and that's good for inflation but it suggests you don't have any foundation for consumer spending growth," he said.

Although the economy seems to be recovering, Leahey said that based on recent data "there's no sustained V-shaped recovery because the consumer sector still has too many fundamental problems."

The goods-producing sector lost 116,000 jobs in September including 64,000 in manufacturing. Even worse, the services sector shed 147,000 jobs with 39,000 of those in retailing.

Since the start of the recession in December 2007, the figures showed the number of unemployed persons has increased by 7.6 million to 15.1 million, and the unemployment rate has doubled to 9.8 percent, according to the Labor Department.

Economist Nigel Gault at IHS Global Insight said there was "no silver lining" to the latest report.

"There was nothing to support the view that the economy will be adding jobs before the end of the year," he said.

"And nothing to support the view that the consumer can sustain the spending increases that we saw in August -- employment and hours worked were down, and hourly earnings only inched higher, implying that wage and salary incomes fell."

The US economy contracted at a 0.7 percent pace in the second quarter, nearly emerging from the recession that slashed output by 6.4 percent in the first quarter, based on the most recent official data.

Most economists expect growth to return in the third quarter but say the recovery could fade without job growth.

Robert Brusca at FAO Economics said that some backtracking in recovery is not unusual, "but usually the backtracking comes after more progress has been made."

"The main backtrack this month was from the government sector where 53,000 jobs were lost after having shed 19,000 a month ago," he said.

"Where is the stimulus money? This demonstrates about a clearly as possible how badly designed the stimulus plan was. We spent over one trillion dollars...and one of the objectives was to stabilize state and local employment. That obviously was not done."

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