June 7, 2003
Unemployment Rate Rises to a 9-Year High
ASHINGTON, June 6 — The unemployment rate rose to 6.1 percent in May, its highest level in nine years, the Labor Department reported today, as the worst jobs slump since the early 1980's continued to spread across the economy.
Still, the pace of layoffs has slowed over the last two months, suggesting that the economy might have stabilized and could begin adding jobs this summer, forecasters said.
The economy has now lost almost 2.5 million jobs since February 2001, more than the government said previously, according to annual revisions released today by the Labor Department. It is the longest sustained period without job growth since the period before World War II.
"Companies are still cutting costs," said Mark Vitner, a senior economist at the Wachovia Corporation in Charlotte, N.C.. "But it looks like the worst of the layoffs are behind us."
Stocks rose after the report's release this morning — largely because investors had expected larger job losses, analysts said — but they gave up their gains during the afternoon. The Standard & Poor's 500-stock index closed at 987.76, down 2.38 points, or 0.2 percent.
The Federal Reserve still appears likely to cut its benchmark interest rate to encourage new spending when it meets on June 24 and 25, many economists said after the release of the jobs report, a prediction echoed in the price of financial market contracts based on the rate.
The Fed has already cut the rate 12 times since the start of 2001, but the lingering effects from the bursting of the 1990's stock bubble and the uncertainty caused by the war in Iraq and terrorism have prolonged the downturn.
Consumers and businesses have increased their spending somewhat in the last month, offering hope that a recovery has begun. But facing higher health care costs for employees and having become more efficient with the help of new technologies, companies have increased production without adding workers.
In perhaps the most promising sign in the jobs report, companies added a small number of jobs in both April and May after having reduced employment by more than 200,000 during the previous two months, the Labor Department said. Government cuts have caused overall employment to decline since April — including a decline of 17,000 last month — but the private sector is typically a better predictor of the economy's future, analysts say.
Some of the biggest gains came at construction companies, which are benefiting from the housing boom that is being helped by low interest rates, and financial services companies. Businesses also increased the number of temporary workers on their payrolls, by 58,000, a common sign that they are preparing for better times.
But hints of a solid economic recovery have emerged at other points over the last two years, only to fade.
"There are some signs of renewed stability," said Robert S. Gay, an economist at Commerzbank Securities and a former Fed staff member. "But we're talking about kernels of improvement."
Manufacturers cut jobs in May for the 34th consecutive month. Airlines and hotels continued to reduce their work forces and have eliminated 8 percent of their jobs over the last two years. Public schools, department stores, and publishing and telecommunications companies also made cuts in May, according to the Labor Department, which adjusts its statistics to account for normal seasonal variations like the end of the school year.
The average workweek for rank-and-file employees — about 80 percent of the labor force — remained 33.7 hours in May, matching the lowest level since the government began keeping records in 1964. The stagnation suggests that any improvement in the labor market this year might be modest because companies typically ask current employees to work more before they hire new ones.
In addition to the increase in the jobless rate, from 6 percent in April, to the highest since July 1994, the number of people who were not looking for work — and thus not eligible to be considered unemployed by the government — rose. The length of the current hiring slump has caused an unusually large number of workers to grow frustrated with their job search and give up temporarily, economists say.
The revised data released today showed that the economy had lost about 400,000 more jobs between February 2001, when employment peaked, and last month than the Labor Department originally reported. It said a few months ago that the revision would almost certainly be negative, but that announcement did not receive widespread attention.
Over the last 27 months, 1.9 percent of the nation's jobs have disappeared. In the last 50 years, the only larger losses over a similar period, relative to the size of the work force, occurred in 1956-58 and 1980-83.
The current slump "dwarfs the jobless recovery following the '90-'91 recession," said Richard Yamarone, chief economist at Argus Research in Manhattan.
But the revisions also showed that layoffs this year have been less severe than originally reported and that the economy was not sliding into a new recession, as some economists feared. Since December, 114,000 jobs have vanished, about one-third the size of the loss reported in earlier data.
Democrats here used the increase in the jobless rate to criticize President Bush's economic record again, saying that a series of tax cuts has erased the budget surplus without lifting growth.
"You have three million who have lost their jobs during Bush's tenure, and $3 trillion added to the nation's debt," said Representative Rahm Emanuel, Democrat of Illinois, formerly an aide to President Bill Clinton. "This is not the trade-off most people were expecting."
(The actual employment loss since Mr. Bush took office is 2.4 million jobs.)
Claire Buchan, a White House spokeswoman, said that the economy had begun to weaken in early 2000, almost a year before Mr. Bush's inauguration, and that it was later hurt by corporate scandals and the 2001 terrorists attacks. The tax cut passed last month "will put money back into the economy, and it will help create jobs," Ms. Buchan said.
Secretary of Labor Elaine L. Chao, in a statement, called the increase in the unemployment rate disappointing but said she was encouraged that the pace of job loss had slowed.
Almost all of the increase in unemployment over the last two months has come among workers without a high school diploma, whose jobless rate rose to 9.2 percent last month, from 8.5 percent in March. Throughout most of the last two and a half years, the downturn has affected workers with college degrees nearly as much as those without.
In two signs of economic strength, weekly wages for rank-and-file workers rose $1.69, to $516.96, and the number of people working part time because they were unable to find full-time work fell to 4.5 million, from 4.7 million in April. Earlier this year, wages were not keeping pace with inflation, and the number of part-time workers was rising.