Unemployment rate jumps to 4.9 percent

AP Labor WriterWASHINGTON (AP) -- The nation's unemployment rate soared to 4.9 percent in August, the highest level in nearly four years, and businesses slashed 113,000 jobs as the slumping economy continued to hammer the labor market.

The Labor Department reported Friday that the unemployment rate jumped 0.4 percent in August, up from 4.5 percent, the level it had held since April.

Manufacturing was once again hardest hit, and the August decline of 141,000 jobs was the largest so far this year. Virtually every major manufacturing industry lost jobs last month. Since July 2000, manufacturing employment has plummeted by 1 million.

Businesses eliminated 113,000 jobs in August after adding a revised 13,000 positions in July. The 4.9 percent unemployment rate is the highest since September 1997.

While the August jobless rate is still low by historical standards, it marks a sharp deterioration from the three-decade low of 3.9 percent hit in several months last year.

The August increase was a surprise to analysts, who had expected a smaller rise to 4.6 percent. Some economists said the report still was not devastating news because they expect the rate to rise to above 5 percent before recovery filters to the labor market.

"The unemployment rate is always at its highest at the dawn of new recoveries," said Ken Mayland, president of ClearView Economics. "It's always darkest before the dawn -- that's one metaphor that is particularly relevant here."

Just this week, Motorola Inc. announced it would cut 2,000 more jobs. Insurance giant American International Group said its cutting 1,500 jobs, and as Hewlett-Packard and Compaq merge, the companies say they will be cutting 15,000 jobs.

Economists fear that if the employment climate continues to seriously worsen, consumers -- who have been keeping the economy afloat -- might sharply cut back spending and tip the country into recession.

The Bush administration is counting on tax rebate checks and the Federal Reserve's aggressive credit easing to boost demand and lift the country out of a serious slowdown.

But recession fears were renewed last week when the government revised its estimate of economic growth in the April-June quarter to a scant 0.2 percent rate. By one traditional measure, a recession occurs when the GDP turns negative for two consecutive quarters.

The biggest declines in manufacturing last month were in durable goods, with a 25,000 decline, and industrial machinery and electrical equipment, with a 19,000 drop. Furniture had its largest decline this year, shedding 10,000 jobs. In nondurable goods manufacturing, decreases in apparel, chemicals and rubber and miscellaneous plastics followed gains in July.

Manufacturing's woes continued to affect employment in transportation and public utilities, which fell substantially in August by 24,000 -- the fourth drop in the past five months and the largest in that period.

The service sector, which is the engine of job creation in the United States, increased employment by 72,000 as health services continued to add jobs with 32,000 last month. Hospitals accounted for about half of that increase.

Employment in temporary help firms was steady for the month. The industry has shed jobs since last September with job losses totaling 419,000.

Retail employment was down in August as restaurants and bars lost 30,000 jobs following a large increase in July. Hotel employment also continued to fall and job losses have totaled 42,000 since March.

Computer services experienced its first drop in jobs since the late 1980s, losing 5,000 jobs. One of the reasons the Fed has cited for cutting interest rates is its concern about slumping investment by businesses in computers and other high-tech equipment, which was the fuel of the economic boom.

Construction employment was steady in August, adding 5,000 jobs. Mining, oil and gas extraction companies added 22,000 workers so far this year. Coal mining has added 5,000 workers in the past four months, the first gains in the industry in more than a decade.