BusinessWeek: The Labor Market's Cruel Summer

The Labor Market's Cruel Summer
The unemployment rate spikes to 6.1% in August, strengthening the case that the U.S. economy is in recession


By BusinessWeek, Standard & Poor's, and Action Economics staff


Financial markets were expecting the U.S. economy to shed jobs in the August employment report, released Sept. 5, but a big jump in the U.S. unemployment rate took Wall Street by surprise. The weaker-than-expected data for August suggest the U.S. economy is headed for recession and puts pressure on the Federal Reserve to lower rates rather than raise them, as the Fed has indicated it wants to do.

The unemployment rate jumped 0.4 percentage points to 6.1% in August, as nonfarm payrolls fell another 84,000, compared with an upwardly revised decline of 60,000 in July. Even worse for the labor market, June's 51,000 decline was revised to –100,000, for a net –58,000 revision over the prior two months. The drop in payrolls wasn't too far off economists' consensus estimate of 71,000, but the spike in the unemployment rate was another matter: The consensus estimate had called for it to remain at 5.7% (it was at 5.0% in April).

Manufacturing lost 61,000 jobs in August (44,700 in transportation equipment). Construction fell 8,000. Services employment fell 27,000, with a 61,600 drop in administrative and support services. The government added only 17,000. Household employment declined 342,000, while the civilian labor force rose 250,000.

Pressure for a Rate Cut

"The data are worse than expected across nearly every category and will likely add to the angst in stocks, weaken the dollar, but should give further support to Treasuries," wrote Action Economics analysts in a Sept. 5 Web site posting.

"The data are more confirmation that this is a recession," wrote S&P Economics in a Sept. 5 note. .........(more)

The complete piece is at: http://www.businessweek.com/investor/content/sep2008/pi2008095_492084.htm