Jobless rate goes upward to eight-year high

Saturday, May 3, 2003

WASHINGTON -- The nation's unemployment rate swelled to 6 percent in April, returning to an eight-year high as employers slashed payrolls even deeper. The ailing economy has lost a half million jobs in the past three months.

The rate was up two-tenths of a percentage point from March, with payrolls falling by 48,000, the Labor Department reported Friday.

The bottom line: Employers are handing out pink slips, not job offers, and that's not likely to change soon.

"For those who are out of work, finding a job is getting tougher," said David Rosenberg, chief economist at Merrill Lynch.

April's job losses were the third in a row, which never occurs outside of recessions, he said, adding that "we now have such a case." Job cuts were concentrated in manufacturing, airlines and retail.

A separate report based on the previous month was more positive for the nation's factories. Orders rose 2.2 percent in March, an improvement over the 1.0 percent decline registered in February and the largest gain in eight months, the Commerce Department said.

In April, the number of unemployed workers surged to 8.8 million, with almost 2 million without jobs for 27 weeks or more. The average duration of unemployment shot up to 19.6 weeks -- a 20-year high.

"There's just no denying that these are an awful set of job figures for April," said Ken Mayland, president of ClearView Economics in Cleveland.

The unemployment rate last hit 6 percent in December, but it has hovered just below that mark for more than a year. The last time it was higher was in July 1994, when it reached 6.1 percent as the country was emerging from the previous recession.

Now that the Iraq war is over, modest hiring could resume, Mayland said. Some recent positive economic signs include lower gasoline prices, an improved stock market and elevated consumer confidence.

The report underscores the challenges facing President Bush as he turns his attention to domestic matters and a re-election campaign.

Democrats say Bush, like his father, is politically vulnerable on the economy. Some criticized his prime time speech Thursday night from the USS Abraham Lincoln, saying he should spend more energy on getting Americans back to work.

"As thrilling as it was for our troops on the Lincoln to see President Bush land on deck to welcome them home, millions of Americans back on dry land are wondering how they can land a job," said Rep. Ed Markey, D-Mass. He said the patience of jobless workers is being worn thin by Bush's "flights from reality."

Bush wants Congress to pass at least $550 billion in tax cuts, including eliminating taxes on corporate dividends, as a way to jump start the economy.

Even if it passes, unemployment could continue to climb through the summer because any improvements in the economy would take time to trickle down into hiring.

White House spokesman Ari Fleischer, traveling with Bush in California, said, "Unemployment is a lagging indicator, and Congress must not lag in its responsibility to pass his job and growth package."

But support for the package is tepid, and Democrats say a better way to stimulate the economy is to extend unemployment benefits a second time. The current extension expires at the end of the month, which will cut off benefits for millions of jobless workers.

April's jobless rate increase was caused in part by 680,000 people returning to the labor force. The ouster of Saddam Hussein's regime in Iraq boosted Americans' confidence, sending many unemployed people back out to look for work. But their searches yielded little results because the economy wasn't healthy enough to create new jobs.

Even before the war, businesses were wary about making big spending and hiring commitments in a struggling economy.

"We're still bleeding, but the hemorrhaging has stopped," said Bill Cheney, chief economist with John Hancock Financial Services.

Job losses slowed last month, compared with cuts of 124,000 in March and 353,000 in February. Also encouraging was that the losses were not widespread, Cheney said.

The data was "a little bit more reassuring than it looked on the face of it. It was almost a relief," he said.

The Federal Reserve likely will continue to hold the federal funds interest rate, its main tool to influence economic activity, at 1.25 percent, a 41-year-low, when it meets next week, analysts said.

A healthy economy typically adds 200,000 to 250,000 new jobs each month, Mayland said. It could be a long time before those days return.

The costs associated with hiring new employees have skyrocketed, particularly for health care and pensions. Companies will make do with their existing force for as long as possible, working employees longer hours and paying more overtime.

"Companies are going to want to keep the head count down to their most minimum levels," Mayland said. "That's going to delay us getting back to so-called normal times."

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