Welcome to the jobless recovery.
The U.S. unemployment rate zoomed to an unexpected 10.2% in October, piercing the double-digit barrier for the first time in 26 years as employers continued to slash payrolls even as the nation's economy continues to improve.
The jobless rate pierced the psychologically important 10% barrier for the first time since 1983, as employers made deeper-than-predicted payroll cuts. In fact, the number of unemployed Americans grew by 190,000 last month, the Labor Department said Friday.
Economists had predicted job losses would reach 175,000, and that the unemployment rate would reach 9.9%, according to a survey of economists conducted by Bloomberg News. The unemployment rate was 9.8% in September.
"The rise in the unemployment rate is very ugly," Ethan Harris, chief U.S. economist at Bank of America Merrill Lynch (NYSE: BAC), said in an interview with Bloomberg Television in New York. "This is a big backward step to get this high of an unemployment number this early in the recovery."
Including part-time workers who'd prefer a full-time position - and people who want work but who have given up looking - unemployment levels reached a record 17.5% in October, up from 17% in September. That's almost one-fifth of the U.S. work force.
The uptick in joblessness comes just after the U.S. economy delivered better-than-expected growth in the third quarter. On Oct. 29, the U.S. Commerce Department said that gross domestic product (GDP) in the world's largest economy grew 3.5% during that three-month stretch. That was slightly better than the 3.2% that economists were expecting.
October marked the 22nd consecutive month that payrolls have declined, which means that a total of 8.2 million people have been thrown out of work since the recession began in December 2007. A total of 15.7 million Americans are now out of work, the Labor Department report said.
One glimmer of hope was that payrolls in August and September were revised higher by 91,000 jobs. Additionally, the pace of layoffs has slowed sharply from early this year, when nearly 750,000 jobs were lost in January.
Even though the economy grew by 3.5% in the third quarter, the rebound is predicted by some economists to be a "jobless recovery," making it especially difficult on Americans who are already out of work.
"The unemployment rate of 10.2% is problematic because it gives a sense of urgency to Washington, D.C. Washington will be looking for any increase in stimulus," Tom Sowanick, co-president and chief investment officer at OmniVest Group LLC told Reuters.
The weak labor market and anemic wage growth are expected to keep inflation in check for some time, giving the U.S. Federal Reserve free rein to maintain supportive policies.
The central bank on Wednesday said the economy will continue to be sluggish as it held overnight interest rates near zero and reiterated a pledge to keep borrowing costs low for an "extended period."
The labor market is being closely watched for signs of whether the economic recovery that started in the third quarter can be sustained without government support.
President Barack Obama has said job creation is a critical piece of any economic recovery, and the Fed has hinted that economic growth by itself won't be enough to raise borrowing costs.
The jobless rate is "the dominant variable driving changes in the fed funds" rate, and the central bank "has never raised rates with unemployment rising." economist Joseph LaVorgna of Deutsche Bank Securities Inc. (NYSE: DB) wrote in a client note that was obtained by Bloomberg.
Some companies are laying off workers as concerns grow that consumer spending will dry up as government-assistance programs run out. Johnson & Johnson (NYSE: JNJ), the world's largest health-products company announced last week it will shed as many as 7,000 workers, potentially reducing its payrolls by 7%
In October, job losses were across almost all sectors. Manufacturing employment fell 61,000, construction payrolls dropped 62,000, and the services sector cut 61,000 workers. Education and health services bucked the trend by adding 45,000 jobs. Government employment was flat.
The worsening unemployment picture could cause problems for Democrats who control Congress as they face congressional elections in November 2010.
This week, voters in Virginia and New Jersey showed their displeasure over the weak economy by ousting two Democratic governors in New Jersey and Virginia. According to election polls, the economy and unemployment were the most important issues, Bloomberg reported.
News & Related Story Links:
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Bloomberg:
Unemployment in U.S. Jumps to 10.2%, Payrolls Fall. -
U.S. Department of Labor:
Employment Situation Summary. -
OmniVest Group LLC:
Official Web Site. -
Money Morning:
Jobless Recovery Category. - Reuters:
U.S. unemployment rate hits 10.2 percent. -
Money Morning News Analysis:
U.S. Unemployment May be a Bigger Problem Than Government Statistics Say. - Money Morning News:
U.S. Economic Growth Surprises in the Third Quarter.