WASHINGTON — The nation's unemployment rate bolted above the psychologically important 6 percent level last month for the first time in five years — and it's likely to go even higher in the months ahead, possibly throwing the economy into a tailspin just as Americans pick a new president.
A blizzard of pink slips propelled the jobless rate from 5.7 percent in July to 6.1 percent in August, the Labor Department reported Friday. Such a sharp increase is usually a strong recession warning, and it dashed investors' hopes for a late-year recovery. In Tennessee, the unemployment rate stands at 6.9 percent.
Worried about the economy and their own business prospects, employers cut payrolls by 84,000 in August, marking the eighth straight month of losses.
This year, a staggering 605,000 jobs have vanished — slightly less than the population of Alaska. The economy needs to generate more than 100,000 new jobs a month for employment to remain stable.
The latest employment snapshot was worse than economists were forecasting. They were expecting payrolls to drop by around 75,000 in August and the jobless rate to tick up a notch, to 5.8 percent.
Bruce Bittles, chief investment strategist at Robert W. Baird & Co. in Nashville, saw the rise in unemployment for an eighth consecutive month as confirmation that the U.S. economy is in a recession.
"Large jumps in the unemployment rate typically only happen in recessions," Bittles said, adding that recessions are generally almost over by the time the standard definition of two quarters of negative growth in GDP occurs.
Richard Yamarone, economist at Argus Research, feared that the jobless rate would cause consumers and businesses to "move from a moderately concerned stage to outright fear" and reduce their spending even more.
Housing, credit and financial problems have badly shaken the economy, and the crisis shows no signs of letting up. It's the public's top worry, and many experts believe the situation will get worse before it gets better.
The unemployment in crease means many companies will feel pressure to reduce investments — either in capital projects or hiring — for the rest of the year.
"Mix business caution with consumer exhaustion and you have a recipe for a real recession," said Terry Connelly, dean of Golden Gate University's Ageno School of Business.
Local outlook is cloudyDavid Penn, an economist with Middle Tennessee State University, said the local economic outlook depends on what happens with the real estate and auto sectors.
"If we can get those sectors moving again, we'll be doing a lot better than the nation," Penn said. "We have a diversified economy — still, when the auto sector gets hit as hard as it's been, we're bound to get more of a negative impact than other parts of the country."
The number of unemployed rose to 9.4 million in August, vs. 7.1 million a year ago. Economists predict more job losses ahead, pushing the unemployment rate to 7 percent by fall of 2009, according to some projections.
Against this backdrop, a growing number of analysts predict the economy will jolt into reverse in the final three months of this year and possibly in the first three months of next year, meeting a classic definition of a recession.
Friday's grim report prompted Capitol Hill Democrats to renew their push for a second stimulus package. The Bush administration has been cool to the idea.
Presidential candidates Barack Obama and John McCain seized on the job figures to attack each other's proposals to turn the economy around.
"The working men and women I meet every day are working harder for less," Obama said. He advocates tax cuts for working families and investment in road, bridges and other projects to lift the economy.
McCain vowed to "fight for those that lost their jobs, savings and real-estate investments."
He said tax reductions for people and businesses, job training and measures to promote trade would help ease the economic woes.
The Fed, which is struggling to curb inflation and im prove growth, is expected to leave a key interest rate at 2 percent when it meets Sept. 16. At its last two meetings, the Fed didn't change the rate. Before that, though, it had aggressively cut rates to shore up the economy. Many thought the Fed might start to raise rates next year to fend off inflation. But now, with employment deteriorating, some wonder whether the Fed might be forced to lower rates again.
Unemployment hits 4-year high as 51,000 more jobs disappear
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