Unemployment rate hits 6.5%, a 14-year high

The economy lost 240,000 jobs in October, bringing the total to 1 million jobs lost this year.

By Maura Reynolds

7:31 AM PST, November 7, 2008

Reporting from Washington — Employers slashed jobs from one end of the economy to the other, pushing the unemployment rate to 6.5% -- the highest in 14 years -- and making a deep recession a virtual certainty.

The Labor Department reported today that the economy lost 240,000 jobs in October, the steepest one-month decline in a contraction that began last January. It also revised downward the number of jobs lost in September, to 284,000 from an initially reported 159,000.

Normally, the economy must create about 100,000 jobs a month just to keep pace with population growth. So far this year, the economy has shrunk by over 1 million jobs.

The stock market, which fell over 400 points on Thursday in anticipation of a dismal jobs report, rose over 90 points in early trading in relief that the numbers weren't even worse.

Peter Kretzmer, senior economist at Bank of America in New York, said that job losses were only likely to accelerate in coming months and the unemployment rate could rise to near 8% by the end of next year.

"The October employment report indicated that businesses sped up their layoffs as the financial crisis deepened in September," Kretzmer said in a note to clients. "With the economy in recession and GDP declining at about an average 3% . . . we expect rapid payroll declines to continue well into 2009, before gradually abating."

Jared Bernstein, a labor economist with the Economic Policy Institute, said the deteriorating conditions for U.S. workers are likely to intensify calls for Congress to pass another economic stimulus package.

"Job loss is very pervasive right now across industries," Bernstein said. "It's hard to find industries that are creating jobs, other than health care and government . . . and not coincidentally, those sectors both have heavy government involvement."

"When the private sector engine stalls, the public sector engine needs to kick in," Bernstein said.

The unemployment rate soared 0.4% in one month, rising from 6.1% in September to 6.5% in October -- a sign that employers, facing slackened demand for their goods and services, are responding by cutting jobs.

"A consumer-led recession is upon us, and it promises to be a serious one," said Joshua Shapiro, chief U.S. economist at MFR Inc., a New York economic forecasting firm.

The last time the unemployment rate was so high was in March 1994, when the economy was still struggling to recover from a recession.

The unemployment rate is a survey of those who have lost employment and are actively looking for new work. It does not include people who are working part-time because they can't find a full-time job, or workers who have become so discouraged that they have stopped applying for jobs.

When the discouraged and part-timers are included in the sample, the unemployment rate jumped to 11.8% in October, the Labor Department estimated, up from 11% in September.

Bernstein noted that job losses are a "lagging" phenomenon -- unemployment tends to peak well after the economic shocks that cause it, and take longer to abate even after the economy recovers.

He noted that the lag has lengthened in recent business cycles, with it taking roughly two years after a recession for the economy to regain the lost jobs.

"Employers often wait to be sure that the economy is really tanking before laying people off in earnest. And they want to be quite sure that consumers are back before they take on another workers," Bernstein said. "Unfortunately, that lag has gotten a lot longer in recent years."

Reynolds is a Times staff writer.

maura.reynolds@latimes.com