Job Losses Weigh on Recovery

Layoffs Slow but Unemployment Rate Hits 9.7%, Highest Since 1983

Maureen Sanders looks for postings at the Employment Connection on Wednesday in Parma, Ohio.

Employers cut jobs in August at the slowest pace in a year, but a jump in the unemployment rate to a 26-year high of 9.7% reinforced worries that a weak labor market could weigh on consumer spending and the vigor of the economic recovery.

Nonfarm payrolls fell by 216,000 jobs in the month, fewer than the 276,000 lost in July, the Labor Department said Friday. The economy has shed 6.9 million jobs since the recession began in December 2007. The data reinforced expectations that employers will begin adding jobs by early next year, though the pace of job creation remains uncertain.

The latest figures are consistent with an economy pulling out of the deepest downturn since the Great Depression. But rising unemployment portends persistent weakness in consumer confidence, income and spending, even as manufacturers start bouncing back and stocks revive. The construction and manufacturing sectors together accounted for more than half of August's job losses. Losses in retail and business services narrowed. The biggest gains came in health care.

Stephen Stanley of RBS Securities said the report "strengthens our conviction of a relatively upbeat economic outlook," but added that "it was not far enough away from expectations to change the views of either optimists or pessimists."

[Painful Spike]

Rising joblessness is likely to heat up the debate in Washington about the efficacy of the $787 billion fiscal stimulus. Government payrolls declined only 18,000 in August. If not for federal support for state and local budgets, they probably would have fallen further. On the other hand, stimulus funds are flowing too slowly to offset continuing cuts by private employers.

"I want to be clear about something: Less bad is not good," Vice President Joe Biden said. "That's not how President Obama and I measure success."

The rise in unemployment, after dipping to 9.4% in July, came as more Americans returned to the work force. Teenage unemployment hit 25.5%, the highest since the government began keeping records in 1948. Most economists expect the rate to top 10% in coming months and stay over 9% through 2010.

Write to Sudeep Reddy at sudeep.reddy@wsj.com
 

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