Nov. 7 (Bloomberg) — The U.S. unemployment rate rose to the highest level since 1994 as companies slashed payrolls, setting the stage for the steepest economic decline in decades and a tough start for Barack Obama’s presidency.
The jobless rate rose to 6.5 percent in October from 6.1 percent the previous month, the Labor Department reported today in Washington. Employers fired 240,000 workers after a loss of 284,000 in September. Revisions to the previous month added 25,000 more to the jobless lines than previously reported.
The surge in unemployment, coupled with other signs the economy nosedived last month, puts pressure on Obama to quickly name his economic team and spell out his planned remedies. It may also spur congressional Democrats to enact in coming weeks a second fiscal stimulus package.
“The economy has entered the very deep portion of the recession and should remain there over the coming six to nine months,” said John Herrmann, president of Herrmann Forecasting LLC in Summit, New Jersey. “These numbers imply a stimulus package of closer to $500 billion, ranging over the remainder of this year and through 2009.”
Obama may address today’s report after meeting with his transition economic advisers, including billionaire investor Warren Buffett and former Federal Reserve Chairman Paul Volcker. The incoming president holds his first post-election press conference at 1:30 p.m. in Chicago.
25-Year High
The total number of unemployed Americans jumped to 10.08 million last month, the highest level in a quarter-century, today’s report showed.
Economists had anticipated a 200,000 drop in payrolls after a previously estimated 159,000 decline in September, according to the median of 78 estimates in a Bloomberg News survey. The median forecast for the unemployment rate was 6.3 percent.
“We’re heading for a deep recession,” said Nariman Behravesh, chief economist at IHS Global Insight in Lexington, Massachusetts. “Banish the word mild from your vocabulary. It’s big, it’s bad and it’s broad-based.”
Stocks today recouped some of their losses from the past two days, when benchmark indexes plunged the most since 1987. The Standard & Poor’s 500 Stock Index was up 1.2 percent at 915.85 at 11:37 a.m. in New York. Ten-year Treasury note yields rose to 3.76 percent from 3.69 percent late yesterday.
“The evidence is more than compelling” that a recession is under way, Robert Hall, who heads the National Bureau of Economic Research’s panel that dates economic cycles, said in an interview following the jobs report. “It’s conclusive, in my personal opinion.” Hall is an economics professor at Stanford University.
Goldman’s Forecast
Goldman Sachs Group Inc. analysts downgraded their projections for the economy after today’s report, foreseeing the biggest contraction since 1982 in the fourth quarter. Goldman also projects that the unemployment rate will soar to 8.5 percent by the end of next year.
Job losses for August and September were revised up by 179,000. The economy has lost 1.18 million jobs so far this year.
The rise in jobless rolls was just the latest statistic suggesting that the economy gave way in October. U.S. auto sales plunged 32 percent, manufacturing contracted at its fastest pace in 26 years and consumer confidence fell by the most on record during the month.
The gathering gloom may prompt Federal Reserve Chairman Ben S. Bernanke and his central bank colleagues to reduce interest rates further at their next meeting on December 16. The Fed cut its benchmark rate a half percentage point last week to 1 percent, matching a half-century low.
Another Fed Move
“We will see another easing of 25 or 50 basis points in December,” said John Silvia, chief economist at Wachovia Corp. in Charlotte, North Carolina, adding, “We may go for a very long time before the Fed is in a position to be raising rates again.”
Central banks throughout Europe slashed rates this week as the economic slump that began in the U.S. spread overseas, crimping consumer and corporate confidence. The International Monetary Fund this week projected the first simultaneous economic contractions in the U.S., Europe and Japan in the postwar era.
U.S. factory payrolls fell 90,000, the biggest monthly loss since July 2003, after decreasing 56,000 in September. A strike by 27,000 machinists at Boeing Co., which was resolved earlier this month, contributed to the drop, the Labor Department said.
Economists had forecast a drop of 65,000 manufacturing jobs. The decrease included a loss of 9,100 jobs in auto manufacturing and parts industries.
Today’s report also reflected the housing slump and credit crunch. Payrolls at builders dropped 49,000 after decreasing 35,000. Financial firms reduced payrolls by 24,000, after a 16,000 decline the prior month.
Loss at Retailers
Service industries, which include banks, insurance companies, restaurants and retailers, subtracted 108,000 workers after dropping 201,000 in the previous month. Retail payrolls decreased by 38,100, led by a loss of 20,300 jobs at auto dealerships, after a decline of 44,800.
Government payrolls increased by 23,000 after a loss of 41,000.
American Express Co., the largest U.S. credit-card company by purchases, said Oct. 30 it would eliminate 10 percent of its workforce, or about 7,000 people, to cut costs amid rising defaults as consumers fail to repay their debts.
The job cuts “will help us to manage through one of the most challenging economic environments we’ve seen in many decades,” Chief Executive Officer Kenneth Chenault said in a statement.
Workers’ average hourly wages rose 4 cents from the prior month, or 0.2 percent, to $18.21, the jobs report also showed. Hourly earnings were 3.5 percent higher than in October 2007.
The loss of jobs, plunging home prices, and a record tightening of bank lending may cause consumers and businesses to keep retrenching.
Gross domestic product shrank at a 0.3 percent annual pace in the third quartet and consumer spending fell at a 3.1 percent pace, the most since 1980.
