Posted on: Saturday, December 7, 2002

Jobless rate of 6% equals April high

By Leigh Strope
Associated Press

WASHINGTON — The nation's unemployment rate soared to 6 percent in November, delivering what one analyst called a "cold, hard slap in the face" about a sagging economy that many thought had already hit bottom for job seekers.

The jobless rate, up from 5.7 percent a month earlier, matched an eight-year high set last April.

The increase was a hard blow, said Bill Cheney, chief economist at John Hancock Financial Services. "There was something psychologically comforting about unemployment staying below 6 percent," he said.

The Labor Department released the report yesterday, less than an hour before word spread of a shake-up of President Bush's economic team. The White House, amid growing uneasiness about the ailing economy, requested the resignations of Treasury Secretary Paul O'Neill and chief economic adviser Larry Lindsey.

Bush advisers have been increasingly worried that the economy could hamper the president's re-election pros-pects.

Companies slashed 40,000 jobs last month, the most since February, when 165,000 jobs were cut, the report showed. Economists had forecast modest job growth.

The dismal report initially stung Wall Street, but it overcame anxiety in afternoon trading. The Dow Jones industrial average was up 22 points, the Nasdaq 11, at the close.

November's jobless rate was the same as in April, which had been the highest since July 1994 when it hit 6.1 percent.

Economists said the recovery, moving in fits and starts, is beginning to mirror that of the last recession, when Bush's father was president. High unemployment that failed to start dropping until almost two years later helped cost him a second term, which his son has vowed not to repeat.

"We are having a replay of the jobless recovery," said Ken Mayland, an economist with ClearView Economics. "I think that's going to continue." Escalating business expenses, notably medical care and pension costs, are forcing companies to "keep their head count down," he said.

Analysts had thought the unemployment rate might tick up to 5.8 percent for November, with stabilizing layoffs and fewer workers seeking unemployment benefits in recent weeks.

That created optimism for the holiday shopping season, a hope that workers would be lining up at cash registers rather than at unemployment offices.

Consumer spending amounts to two-thirds of all economic activity in the United States and has been the main force keeping the economic recovery more or less on track. November's sales were modest, and people worried about job security are expected to be frugal.

"The labor market remains weak," said Paul Kasriel, chief domestic economist at the Northern Trust Co. "Unfortunately, I don't see much on the horizon that's going to strengthen it."

The jobless rate is expected to rise in coming months to as high as 6.5 percent. The number of people out of work for 27 weeks or more rose by 78,000 to 1.7 million last month. Nearly 1 million people will start running out of unemployment benefits three days after Christmas, because Congress failed to extend the payments before adjourning last month.

Those economic uncertainties, along with concerns about a war with Iraq, led consumers to ease their borrowing in October. The 1 percent seasonally adjusted annual rate marked the slowest pace since June 2001 and followed a 3.3 percent growth rate in September.

Much of October's slowdown reflected a pullback in demand for nonrevolving credit, which includes new cars and vacations. Nonrevolving credit fell at a rate of 1.2 percent in October, while demand for revolving credit, such as credit cards, increased at a brisk 4.1 percent pace.

The economy isn't growing fast enough to create new jobs needed to absorb a growing pool of people looking for work. Analysts said the unemployment rate probably should have been estimated higher in previous months to reflect that.

"Clearly the economy is still on the sick bed requiring some more treatment," said Sung Won Sohn, chief economist at Wells Fargo. "We are not out of the woods yet by any means."