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UNEMPLOYMENT rate soars as manufacturing job losses pass 1 million for year

Updated:

WASHINGTON (AP) _ The nation's unemployment rate swelled to 4.9 percent in August as job losses in manufacturing passed 1 million for the yearlong national slowdown. The increase in the monthly jobless rate was the biggest in six years.

The report Friday virtually guaranteed further interest rate cuts by the Federal Reserve to try to revive the economy, analysts said.

Businesses slashed 113,000 jobs from their payrolls last month, the Labor Department reported. The jobless rate rose by 0.4 percentage point from 4.5 percent in July, the level it had held since April.

'''Ugly' is not a strong enough term to describe this report,'' said Joel Naroff, president and chief economist of Naroff Economic Advisors. ``It was brutal.''

The report sent stocks sliding on Wall Street. By midday, the major indexes were within striking distance of their worst levels of 2001 established last spring.

The unemployment report tends to indicate where the economy has been rather than where it is going. The jobless rate often continues rising even after the economy starts to improve, reflecting the fact that businesses are afraid to hire back workers until they are certain the rebound is sustainable.

But economists were worried about the report's effect on consumers, whose spending has kept the economy afloat during the sluggish past year.

``When the economy needs consumers' support most, this bad news comes along,'' said Richard Yamarone, economic research director for Argus Research Co.

The Federal Reserve has reduced interest rates seven times this year to ward off recession. Analysts are expecting at least a quarter-point cut at the Fed's Oct. 2 meeting, if not a return to the half-point moves of earlier in the year.

President Bush still believes the economy will start to perk up late this year and early next year, said White House spokesman Ari Fleischer.

``The president is confident that the plan that is in place will work, and let me remind you that that plan is only now beginning to be felt in the economy,'' he said.

The administration is counting on the Fed's aggressive credit easing as well as federal tax rebate checks.

But Democrats seized on the rising unemployment rate, tying it to the White House and the dwindling federal surplus.

``I think it's a reflection, unfortunately, of the Bush budget and Bush economy,'' said Senate Majority Leader Tom Daschle, D-S.D.

In August, manufacturing was once again hardest hit, shedding 141,000 jobs, the biggest one-month loss so far this year. Virtually every major manufacturing industry lost jobs. Since July 2000, manufacturing employment has plummeted by more than 1 million. But gains in the service sector helped offset those losses.

The overall decline of 113,000 jobs in August followed a revised 13,000 increase in July. The 4.9 percent unemployment rate was the highest since September 1997 and marked a pronounced decay from the three-decade low of 3.9 percent posted in several months last year.

The 0.4 percentage point increase in the overall rate was the biggest one-month rise since a similar surge in April 1995.

Just this week, Motorola Inc. announced it would cut 2,000 more jobs. Insurance giant American International Group said it was cutting 1,500, and as Hewlett-Packard and Compaq merge, the companies say they will be cutting 15,000 jobs.

Some analysts expect the jobless rate to rise above 5 percent before recovery begins to be felt.

``It's always darkest before the dawn _ that's one metaphor that is particularly relevant here,'' said Ken Mayland, president of ClearView Economics.

Computer services experienced the first drop in jobs since the late 1980s, losing 5,000 last month. One of the reasons the Fed has cited for cutting interest rates is its concern about slumping investment by businesses in computers and other high-tech equipment.

The biggest declines in manufacturing last month were in durable goods, with 25,000, and industrial machinery and electrical equipment, with 19,000. Furniture had its largest decline this year, shedding 10,000 jobs. In nondurable goods manufacturing, decreases in apparel, chemicals and rubber and miscellaneous plastics followed gains in July.

Manufacturing's woes continued to affect employment in transportation and public utilities, which fell in August by 24,000.

The service sector, the engine of job creation in the United States, increased by 72,000 as health services continued to add jobs with 32,000. Hospitals accounted for about half of that.

Retail employment was down in August as restaurants and bars lost 30,000 jobs after a large increase in July. Hotel employment also continued to fall and was down 42,000 since March.
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