Employers Cut Jobs, But Jobless Rate Holds Steady

October 3, 2008 - 9:09 AM
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Washington (AP) - Employers slashed payrolls by 159,000 in September, the most in more than five years, a worrisome sign that the economy is hurtling toward a deep recession.
 
The Labor Department's fresh snapshot, released Friday, also showed that the nation's unemployment rate held steady at 6.1 percent as hundreds of thousands of people streamed out of the work force for any number of reasons.
 
The reduction in payrolls was much sharper than the 100,000 cuts economists were forecasting. They expected the jobless rate to be unchanged.
 
It marked the ninth straight month that the economy has lost jobs. The drop underscores fallout from a long slump in the housing market and a dangerous credit crunch that intensified last month throwing Wall Street -- and the economy -- into chaos.
 
So far this year, 760,000 jobs have disappeared.
 
"The economy is now sliding down the slippery slope of recession," said economist Ken Mayland, president of ClearView Economics.
 
Wall Street appeared relieved the decline in payrolls wasn't deeper. Stock futures were strengthening, pointing to a higher opening. The Dow fell 348 points Thursday amid worries about the broader economy.
 
Employers cut 73,000 jobs in August, slightly less than the 84,000 initially estimated, according to revised figures. However, the cuts in July turned out to be a bit deeper -- 67,000 versus the 60,000 previously reported.
 
The 159,000 jobs lost in September were the most since March 2003, when the labor market was still struggling to get back on its feet after being knocked down by the 2001 recession.
 
Job losses were widespread last month.
 
Manufacturers cut 51,000 jobs, construction companies axed 35,000 jobs, retailers got rid of 40,000 positions, business services shed 27,000 and financial services slashed 17,000 positions, with securities and investment firms accounting for 8,000 of those reductions. Leisure and hospitality companies also reduced employment by 17,000. That overwhelmed employment gains by the government, in education, health and elsewhere.
 
Cost-cutting employers are getting rid of workers as companies chafe under a slew of problems related to the economy's slowdown, a painful housing collapse and a dangerous credit crunch.
 
Companies announcing layoffs in September included Hanesbrands Inc., Hewlett-Packard Co., Schering-Plough Corp., Alaska Airlines and Alcoa Inc.
 
Friday's employment snapshot is the last before America goes to the polls in November.
 
Mounting job losses, shrinking paychecks, shriveling nest eggs and rising foreclosures all have weighed heavily on American voters.
 
The economy is their No. 1 concern. An Associated Press-GfK poll earlier this week showed that likely voters now back Democratic presidential contender Sen. Barack Obama 48 percent to GOP rival John McCain's 41 percent. They believe Obama is better suited to lead the country through the financial turbulence.
 
To avert even more economic upheaval, Congress is weighing a $700 billion plan to buy bad assets from banks and other institutions to shore up the financial industry. The legislation is urgently championed by President Bush and his top economic generals.
 
Spooked consumers and businesses have pulled back so much that some analysts fear the economy could stall out -- or even worse -- shrink in the July-to-September quarter. Many predict the economy will contract in both the final quarter of this year and the first quarter of next year, meeting the classic definition of a recession. The economy's last recession was in 2001.
 
Wage growth for workers is slowing.
 
Average hourly earnings rose to $18.17 in September, a 0.2 percent increase from the previous month. That was half the pace logged in the previous month and was weaker than the 0.3 percent gain economists were expecting. Over the past year, wages have grown 3.4 percent but paychecks aren't stretching as far because of high food and energy prices.
 
All the economic and financial fallout has put more pressure on the Federal Reserve to reverse course and cut a key interest rate again on or before its late October meeting. The Fed halted its rate-cutting campaign in June out of fear it was aggravating inflation. Since then, it has opted to hold rates steady. Some analysts believe the conditions have eroded enough to warrant another rate reduction in an effort to revive the economy.
 
The financial crisis intensified in September, forcing a seismic shake-up on Wall Street.
 
Lehman Brothers, the country's fourth-largest investment bank, filed for bankruptcy protection. A weakened Merrill Lynch, deciding it couldn't go it alone anymore, found help in the arms of Bank of America. AIG was thrown a financial lifeline. And, the last two investment houses -- Goldman Sachs and Morgan Stanley -- decided to convert themselves into commercial banks to better weather the financial storms. The number of banks that have failed this year are up sharply from last year.
 
On Friday, Wachovia Corp. said it will be acquired by Wells Fargo & Co. in a $15.1 billion all-stock deal, wiping out Wachovia's previous plan to sell its banking operations to rival suitor Citigroup Inc.