Unemployment Rate Hits 5-Year High

By: CBS/AP
By: CBS/AP

(CBS/ AP) The nation's unemployment rate zoomed to a five-year high of 6.1 percent in August as employers slashed 84,000 jobs, dramatic proof of the mounting damage a deeply troubled economy is inflicting on workers and businesses alike.

The Labor Department's report, released Friday, showed the increasing toll the housing, credit and financial crises are taking on the economy.

"There’s no question that the labor market is weaker than we’d like to see," White House Press Secretary Tony Fratto said Friday. He added that the economic stimulus plan and the administration's monetary policy "will continue to support growth through this difficult period," reports CBS News White House correspondent Mark Knoller.

Despite the report, the Dow Jones industrial average climbed more than 32 points Friday. But the modest gains were not enough to avoid the index's fourth straight week of decline. All the major stock indexes tumbled into bear territory Thursday as investors lost hope of a late-year recovery. With the employment situation deteriorating, there's growing worry that consumers will recoil, throwing the economy into a tailspin later this year or early next year.

The jobless rate jumped to 6.1 percent in August, from 5.7 percent in July. And, employers cut payrolls for the eighth month in a row. Job losses in June and July turned out to be much deeper. The economy lost a whopping 100,000 jobs in June and another 60,000 in July, according to revised figures. Previously, the government reported job losses at 51,000 in each of those months.

So far this year, job losses totaled 605,000.

Stephen Studnicka, 54, was laid off from his New York financial services job back in December, reports CBS News business correspondent Anthony Mason. He spends four to six hours a day looking for work.

"I send out typically 50 resumes a week and I get maybe one or two responses," he said. "I have had many interviews. I have had no offers."

The job losses have been increasingly broad-based. Only the education and health sectors have shown any significant hiring, reports Mason.

The latest snapshot was worse than economists were forecasting. They were predicting payrolls would drop by around 75,000 in August and the jobless rate to tick up a notch, to 5.8 percent. The grim news comes as the race for the White House kicks into high gear. The economy's troubles are Americans' top worry.

"With the unemployment rate over 6 percent, it is a clear warning sign that this economy is continuing to soften faster than we thought. It is a real concern," said Joel Naroff, president of Naroff Economic Advisors. "Businesses have decided to hunker down. They are not hiring, and they are paring workers where they can. That is making things pretty tough out there."

Wachovia Corp., Ford Motor Co., Tyson Foods Inc. and Alcoa Inc. were among the companies announcing job cuts in August. GMAC Financial Services this week said it would lay off 5,000 workers.

Job losses in August were widespread, the government report showed.

Factories cut 61,000 jobs, with housing-related manufacturers and automakers among the hardest hit. Construction firms eliminated 8,000 jobs, retailers axed 20,000 slots, professional and business services slashed 53,000 positions and leisure and hospitality got rid of 4,000. Those losses swamped employment gains in the government, education and health.

Job losses at all private employers - not including government - came to 101,000 in August.

The government said workers age 25 and older accounted for all the increase in unemployment in August.

All told, the number of unemployed rose to 9.4 million in August, compared with 7.1 million a year ago. Economists predict more job losses ahead, pushing the jobless rate to 7 percent by the fall, according to some projections.

Workers saw wage gains in August, however.

Average hourly earning rose to $18.14 in August, a 0.4 percent increase from July. Economists were forecasting a 0.3 percent gain. Over the past year, wages have grown 3.6 percent, but paychecks aren't stretching as far because of high food and energy prices.

With people feeling increasingly squeezed and watching the value of their biggest asset - their home - sink in value, consumers are expected to clamp down more in the coming months.

"It takes consumers to drive the economy and if folks keep losing jobs month after month … we're not gonna have any consumers left," University of Maryland economist Peter Morici told CBS News.

A separate report out Friday showed that a record 9.2 percent of American homeowners with a mortgage were either behind on their payments or in foreclosure at the end of June, the Mortgage Bankers Association said.

"So our feeling is house prices, by whatever measure you use, will continue to decline for the next 12 months," Stu Hoffman, chief economist at PNC Financial Services, told CBS News.

Caught between dueling concerns of slow growth and inflation, the Fed is expected to leave a key interest rate alone at 2 percent when it meets next on Sept. 16 and probably through the rest of this year. Concerned about inflation, the Fed at its last two meetings didn't budge the rate. Before that, though, the Fed had aggressively cut rates to shore up the economy.

With the Fed on the sidelines, Democratic presidential nominee Barack Obama has called for a second round of government stimulus, while his GOP rival John McCain has favored free-trade and other business measures to spur the economy. Both candidates seized on the job figures Friday to take swipes at each other and promoted their own ideas for getting things back on track.

© MMVIII, CBS Interactive Inc. All Rights Reserved. This material may not be published, broadcast, rewritten, or redistributed. The Associated Press contributed to this report.


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