Unemployment Rate Spikes to 16-Year High

The U.S. Labor Department says the nation's unemployment rate in December rose to a 16-year high of 7.2 percent. Employers cut 524,000 jobs during the month. The report also showed that 2.6 million jobs were lost in 2008, the most since 1945.

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MICHELE NORRIS, host:

From NPR News, this is All Things Considered. I'm Michele Norris.

MELISSA BLOCK, host:

And I'm Melissa Block. The U.S. economy lost another half million jobs in December, and the nation's unemployment rate jumped from 6.8 to 7.2 percent. That's according to a grim report issued this morning by the Labor Department. It said businesses cut 2.6 million jobs in 2008. Most of those jobs disappeared over the past few months, which suggest that the downturn in the labor market is worsening. NPR's Jim Zarroli reports.

JIM ZARROLI: As 2008 drew to a close, the country was hemorrhaging jobs at a rate not seen since 1945, when the wartime economy was sputtering to a finish. Nearly every sector of the economy lost jobs, except for healthcare and education, and even there the growth was anemic. For President-elect Obama, the report was another sobering reminder that his first term in office is likely to be dominated by the kind of economic crisis not seen in many years. He spoke to reporters today.

(Soundbite of speech)

President-elect BARACK OBAMA: Clearly, the situation is dire. It is deteriorating, and it demands urgent and immediate action.

ZARROLI: The numbers made clear how much the labor market has deteriorated in recent months. Nariman Behravesh, chief economist at IHS Global Insight, says for much of last year, the economy was losing jobs, but there were pockets of strength like the service sector. Things grew much worse, he says, after the collapse of Lehman Brothers.

Dr. NARIMAN BEHRAVESH (Chief Economist, Global Insight): It really does look like both the U.S. economy and the jobs market sort of fell off a cliff starting in September sometime.

ZARROLI: The collapse of Lehman shattered investor confidence in the financial markets and made the credit crunch a lot worse. Companies could no longer borrow the money they needed to operate. Consumer spending fell. And Campbell Harvey, professor of finance at Duke University, says companies responded by shedding jobs at a faster rate.

Dr. CAMPBELL R. HARVEY (Finance, Duke University): The acceleration is a direct result of corporations going into survival mode, which means they're going to slash employment, they're going to slash capital spending, and whether a discretionary spending will also be slashed.

ZARROLI: And there is still slashing, Harvey says. Like a lot of economists, he says this is no ordinary recession, and he believes it will take a while to play itself out.

Dr. HARVEY: Usually, you can see a few pieces of information that suggest the light at the end of the tunnel. Right now, all you see is evidence of deceleration.

ZARROLI: For instance, today's report showed a drop in the length of the average work week, which fell to its lowest level since the government began keeping records in 1964. Nariman Behravesh notes that companies will often reduce their employees' hours before laying them off altogether.

Dr. BEHRAVESH: A decline in the work week is actually an early warning of much more trouble to come in the sense that a lot of businesses will cut back hours first and then cut back jobs.

ZARROLI: So, when the average work week drops, Behravesh says, it's a sign that the pace of layoffs could increase. Behravesh says he's not sure what it would take to stop the erosion of U.S. of payrolls. He notes that if Congress and the new administration enact a big, bold stimulus plan and do it quickly, the job market could begin to turn around by the end of 2009. But there are already signs of disagreement between Congress and the new administration over the stimulus package. Behravesh says, if they get bogged down in political fighting, then fixing the economy will take a lot longer. And in that case, the unemployment rate could keep climbing for the foreseeable future. Jim Zarroli, NPR News, New York.

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U.S. Unemployment Rate Jumps To 7.2 Percent

The nation's unemployment rate shot up at the end of the year, reaching 7.2 percent in December — its highest level since early 1993, according to a Labor Department report released Friday.

That puts U.S. job losses at 2.6 million for 2008. Unemployment accelerated after September; the lion's share of the cuts — 1.9 million jobs — came during the last four months of 2008.

The numbers were both better and worse than expected. The Labor Department said payroll declined by 524,000 during December, less than the 550,000 that economists had forecast for the month. But the agency also said it had underestimated payroll losses for October and November by 154,000.

Speaking before reporters, President-elect Obama said Friday that the report underscores the need for rapid passage of an economic stimulus package.

"Clearly, the situation is dire," Obama said. "It is deteriorating and it demands urgent and immediate action."

He added, "This is the time to act."

John Silvia, chief economist for Wachovia Financial, said the numbers show businesses cut swiftly and drastically; he sees that as a sign that the situation isn't likely to get worse this year.

"The bright spot is the negative story," Silvia said. "The downdraft in jobs is so severe in the fourth quarter that we've seen the worst in terms of the single biggest quarter for job losses and decline in GDP."

Silvia said he still anticipates unemployment could rise to 8.5 percent or 9 percent during this year.

Silva said the economy is undergoing a "fundamental restructuring." As in the early 1980s and during post-World War II years, the economy is shifting the way it does business and the way consumers spend money, he said. Most critically, this time around, the economy is trying to recover from four decades of expansion in consumer credit. The mortgage crisis has forced a kind of reckoning with the loose credit rules that had been driving the U.S. economy, he said.

Many of the lost jobs came from the manufacturing and construction sectors. Even retail posted a decline at the end of the year — and the sector wasn't helped by sluggish holiday sales and weak consumer spending. The only sectors that didn't show declines were government, education and health services.

Democratic Rep. Barney Frank of Massachusetts, who heads the House Financial Services Committee, called the jobs report "disastrous." He said in a statement that reversing the situation would require a large economic recovery plan, as well as the release of the second half of funds from the Troubled Asset Relief Program, initially passed to try to shore up the financial sector. Some $350 billion in TARP funds have yet to be tapped.

Economists expect the economy to show improvement around the middle of the year — particularly if the incoming Obama administration manages swift passage of an economic stimulus package. Obama has urged investment in infrastructure and education, among other things.

"The bad news is the fiscal stimulus takes time," said Diane Swonk, chief economist for Mesirow Financial in Chicago. "Infrastructure has a big payoff on it, but it takes a long time to get projects up and running."

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