Jobless rate keeps rising

WASHINGTON - At least it's not all bad anymore.

The nation's unemployment rate climbed last month to 9.7 percent - the highest in nearly a generation - but the number of job losses was less than expected and the smallest monthly total in a year.

"It's good to see the rate of job losses slow down," said Nigel Gault, chief U.S. economist at IHS Global Insight. But with unemployment rising, "there isn't the underlying fuel there for strong consumer spending growth," which is vital for a strong recovery.

Employers shed 216,000 jobs in August, the Labor Department said Friday. That was 9,000 fewer than expected but a far cry from the job creation required to rejuvenate the economy: about 125,000 new jobs each month just to keep the unemployment rate from increasing.

The unemployment rate rose three-tenths of a percentage point since July, reaching its highest level since 1983, when it was 10.1 percent. Economists predict that the jobless rate will peak above 10 percent by the middle of next year.

At the same time, many analysts say the economy should grow by a healthy 3 to 4 percent in the third quarter, pulling the United States out of the longest recession since World War II.

Most of that improvement, though, stems from auto companies and other manufacturers refilling their depleted stockpiles. Those inventories had plummeted as factories and retailers sought to bring goods more in line with reduced sales during the recession. Without stepped-up demand from consumers, any current economy growth might not last.

The Obama administration's $787 billion stimulus package of tax cuts and increased spending contributed to the improvement, along with the popular Cash for Clunkers program. The clunkers program provided up to $4,500 in rebates to consumers who traded in old gas-guzzlers for newer models.

An $8,000 tax credit for first-time home buyers has also helped boost housing sales and stabilize prices, after years of declines.

Yet economists worry that none of that will be enough to sustain an economic recovery once the government's efforts fade. As job losses persist and the unemployment rate climbs, even people with jobs will remain anxious about losing them and about spending too much.

Complicating the problem is that even people with good jobs are likely to remain tighter with their money for years to come. Having suffered deep losses in their home equity and stock portfolios, and still stuck with heavy debt loads, Americans will not spend as freely as they did before the recession.

Some economists even fear a so-called "double-dip" recession, which would cause the economy to shrink again next year.

"That's one of the reasons why businesses are reluctant to hire people," said Sung Won Sohn, an economics professor at Cal State University, Channel Islands. "They're not at all sure the economic bottoming is for real."

Gault does not foresee a double-dip recession. But he thinks that the economy, after growing at a 3.7 percent pace in the current quarter, will slow to 2 percent growth in the first three months of next year.

For now, the August unemployment report sketched a bleak portrait of the job market. The number of jobless Americans jumped by nearly 500,000 to 14.9 million.

If laid-off workers who have settled for part-time work or given up seeking jobs are included, the so-called underemployment rate hit 16.8 percent last month. That's the highest such rate on records dating to 1994.

The number of workers who worked part time - because their hours were cut or they could find only part-time jobs - rose by about 300,000. As business improves, companies may switch many of those part-timers to full-time work before they add new employees. That's one reason why analysts expect the unemployment rate to keep rising.

Companies are also squeezing more work out of fewer people. Productivity, a measure of output per hour worked, jumped 6.6 percent in the April-June quarter. It was the largest advance since the summer of 2003.

The report is likely to renew debate about the effectiveness of the Obama administration's $787 billion stimulus package. Administration officials say the program has already saved or created 500,000 to 700,000 jobs. Labor Secretary Hilda Solis said Friday that stimulus money is still being injected into the economy.

"The recession has done more damage than could ever be fixed in half a year," Solis said.

Some analysts are pushing for more stimulus. Lawrence Mishel, president of the Economic Policy Institute, argues the federal government should create more jobs and provide tax credits for companies that hire.

"Until we get robust job growth, and a rapid path to low unemployment, we need to do much more," Mishel said.

Alan Krueger, the Treasury Department's chief economist, said Friday that the administration is considering whether some programs, such as extended jobless benefits or support for housing or other parts of the stimulus program, should be further extended. But he said no decisions had been made.

One modestly bright side for those with jobs: Earnings ticked up, and the number of hours worked remained above a recent record-low.

On Wall Street, stocks rallied. The Dow Jones industrial average added about 77 points, and broader indexes also moved up.

The recession has eliminated a net total of 6.9 million jobs since it began in December 2007. Job cuts last month remained widespread across many sectors. The construction industry alone lost 65,000 jobs.

"It doesn't look like a whole lot of those 'shovel-ready' projects have been started," Joel Naroff, president of Naroff Economic Advisors, wrote in a note to clients.

Factories cut 63,000 jobs. Retailers pared 9,600. The financial sector eliminated 28,000 jobs, and professional and business services dropped 22,000. Even the government sector shed 18,000 jobs, as the U.S. Postal Service cut 8,500 positions, and state and local governments laid off teachers and other school workers.

Temporary-help services cut 6,500 jobs, an unfortunate sign because employers are likely to hire temp workers if they need more labor before turning to permanent hires.

Health care and educational services was the only bright spot, adding 52,000 workers.


AP Economics Writer Martin Crutsinger contributed to this report.


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