Job losses most severe in 21 years

Slump widespread

unemployment rate jumped to 5.4% in Oct.

`Recession territory'

Faltering economy further weakened by terrorist attacks

November 03, 2001|By NEW YORK TIMES NEWS SERVICE

Providing the starkest evidence yet of the economic damage caused by the Sept. 11 terrorist attacks, the federal government reported yesterday that the U.S. labor market, already weak, shed 415,000 jobs last month, the largest one-month drop in more than 21 years.

The unemployment rate surged to 5.4 percent from 4.9 percent in September, its biggest jump since December 1996, when the jobless rate also hit 5.4 percent. Wall Street had expected a rise to 5.2 percent.

Yesterday's employment report gave further credence to the theory that the U.S. economy has entered a recession. The terrorist attacks significantly worsened a bleak situation, economists said.

"The economy was in a very precarious state even before Sept. 11," said John Youngdahl, senior economist at Goldman, Sachs & Co. "In fact, there were a number of indicators suggesting that business conditions had started to turn down in a broader fashion. Then the attacks came, and that really gave activity a sharp downward jolt against which it had virtually no buffer."

Many economists thought the September unemployment report was specious because U.S. households were surveyed during the week of Sept. 10 and anybody who worked at all during that week was counted as employed.

Yesterday's report shows the fragile state of a number of sectors, including retail, transportation and manufacturing.

The 415,000 jobs lost outside the agricultural sector - the biggest decline since May 1980 - far exceeded economists' expectations for a 300,000 drop in nonfarm payrolls. Of that decline, 142,000 jobs were in manufacturing.

Weakness spreads

The weakness has rapidly spread to other sectors. The services industry was also one of last month's big losers, shedding 111,000 jobs, its largest decline ever. After Sept. 11, travel-related industries also posted big losses, including a decline of 46,000 jobs in hotels and 13,000 jobs in car rental agencies and parking services. Temporary employment agencies cut lost 107,000 jobs.

"The size of the drop in manufacturing was certainly eye-opening, but now the spread to the services is very much under way," said Peter Hooper, chief domestic economist at Deutsche Bank North America. "This is, no question, significant recession territory. You look down the list of sectors and they're positive all the way with very few exceptions."

Blacks hit hard

Unemployment rose among every group but was most pronounced among blacks, whose jobless rate rose 1 percentage point last month, to 9.7 percent. A year earlier, the unemployment among blacks had fallen to a record low of 7.2 percent.

The cutback in labor costs took more than one form. Aside from eliminating jobs, employers reduced overtime and trimmed scheduled work, so that average weekly pay for production workers, 75 percent of the work force, fell by 77 cents, to $491.98, the first decline in nominal weekly pay in years.

Part-time work surged among people who wanted full-time jobs and could not get them or whose hours were cut back by their employers against their wishes. That number jumped 1.1 million in September and October, to a total of 4.5 million.

"That is a very big number," said Thomas L. Nardone, chief of the division in the Bureau of Labor Statistics, which compiles the monthly job numbers. "The demand for labor is clearly contracting."

The only bright spots in the report were health services, education and local government, all of which added employees.

On Wall Street, the weak report initially pushed stocks lower. But the Dow Jones industrial average recovered ground later and closed up more than 59 points at 9,323.54. The Nasdaq composite index slipped 0.57, to 1,745.73.

Dismal reports pile up

Last month's unemployment figures are the latest in a series of dismal economic reports this week showing the impact of the terrorist attacks on the labor market.

The Commerce Department reported yesterday that new orders to U.S. factories fell 5.8 percent in September, to $313.1 billion, the lowest level since March 1997. That indicates that manufacturing is unlikely to rebound soon. The biggest decline was in orders for transportation equipment, including cars, which dropped 15.8 percent.

The manufacturing sector has been falling for 15 consecutive months, and since July last year, factory employment has fallen by 1.3 million jobs.

In addition, consumer confidence plunged to 85.5 last month, the lowest since February 1994, the Conference Board said on Tuesday. The nation's gross domestic product shrank by 0.4 percent last month, the sharpest decline in a decade, the Commerce Department said on Wednesday.

There were also reports of big decreases in consumer spending and construction spending.

The unemployment rate is likely to worsen as companies implement job cuts that have been announced, economists said. Some economists are predicting that the unemployment rate could rise as much as 6 percent.

Fed rate cut likely

Yesterday's employment report virtually ensured that the Federal Reserve will cut interest rates when its policy-makers meet Tuesday, economists said. And it puts more pressure on Congress to agree on President Bush's economic stimulus package of tax cuts and government spending.

"The Fed, of course, was going to ease next week no matter what," said Bruce Steinberg, chief economist at Merrill Lynch. "Today's reports raise the probability that they'll go more than they would have.

"The stimulus package better pass Congress, because the economy certainly needs it. Every forecast of recovery assumes that there is going to be a substantial fiscal stimulus."

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