Total number of jobless workers hits nine-year high, Fed hints easing may be over
WASHINGTON (AP) – The number of laid-off workers drawing unemployment benefits has hit a nine-year peak, the government reported Thursday, providing stark evidence of the toll the yearlong economic slowdown was taking on the nation’s labor markets.
The Labor Department said the number of Americans collecting unemployment benefits rose to 3.18 million in the week ending Aug. 11, the highest level since September 1992, when the country was struggling to emerge from the last recession.
In addition to those already drawing benefits, the government said the number of newly laid-off workers filing applications for benefits rose by 8,000 last week to 393,000, the highest level since mid-July.
Private economists said the increase in new claims and the rising number of people receiving benefits were indications of growing strains because of the weak economy.
”The labor market hasn’t seen the worst of this slowdown,” said Richard Berner, chief U.S. economist at Morgan Stanley. ”There are more layoffs to come.”
The official government figures follow a string of new layoff announcements in recent weeks ranging from Ford, the nation’s No. 2 automaker, to Lucent, the telecommunication equipment giant, and Steelcase, the No. 2 office furniture manufacturer.
The unemployment rate remained unchanged at 4.5 percent in July, but economists warned it was likely to rise to 4.6 percent this month and top 5 percent by the end of the year as more companies cut workers in the face of sluggish sales.
”There has been more deterioration in labor markets. We are not out of the woods yet in terms of whether we will have a recession or not,” said Michael Niemira, chief economist at Bank of Tokyo-Mitsubishi in New York.
The concern is that rising layoff notices could cause a sharp cutback in spending by worried consumers. So far, consumer spending, which accounts for two-thirds of total economic activity, has offset a steep slide in business capital spending and kept the country out of a full-blown recession.
The Federal Reserve cut interest rates for a seventh time on Tuesday in an easing cycle that began Jan. 3. However, the rate cut was only a quarter-point, disappointing those on Wall Street who had been hoping for a half-point reduction.
And at their June 27 meeting, when the Fed also cut rates by a quarter-point, a number of Fed officials expressed the view that the central bank ”might well be near the end of its easing cycle,” according to minutes of those discussions released Thursday.
Both Berner and Niemira said they had not ruled out the possibility that the country will dip into a recession this year. Berner said he believed second quarter economic growth, first reported at an extremely weak 0.7 percent, will be placed in negative territory when the government issues its revisions of the gross domestic product next week and he predicted the third quarter to be negative as well.
A recession is marked by two consecutive negative quarters of GDP.
However, other economists insisted there are signs that growth is beginning to pick up. Even if the Fed does not cut rates again at its Oct. 2 meeting, it has already lowered rates enough to guarantee the economy will regain its footing, they said.
These analysts noted another report Thursday showing 30-year fixed rate mortgages declined to 6.91 percent this week, the second straight week the rate has been below 7 percent.
Analysts said low interest rates were keeping home sales and auto sales at strong levels despite the economic slowdown, which began last summer.
The 3.18 million unemployed workers drawing benefits for the week ending Aug. 11 represented a 4.3 percent increase from the previous week, when those receiving benefits totaled 3.05 million. Analysts said this indicated not only a rising number of layoffs, but the fact that it was taking longer for the unemployed to find a new job.
On the Net:
Jobless claims: http://www.dol.gov
Federal Reserve minutes: http://www.federalreserve.gov
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