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Unemployment rate rises to 10.2%

It's the first time it has hit double digits since 1983. Employers cut 190,000 jobs last month, although the pace of job losses continues to slow.

November 07, 2009|Don Lee and Jim Puzzanghera

WASHINGTON — The nation's unemployment rate jumped to 10.2% in October, raising questions about the staying power of the budding economic recovery and confronting President Obama with a politically explosive new challenge.

Not since 1983, after a double-dip economic downturn had sent the auto, steel and housing industries plunging, has the jobless rate gone so high. And many economists predict that it will go higher still in coming months -- and remain high for most if not all of next year.

Some 15.7 million workers now have no jobs, the government said in releasing its monthly unemployment report, and an estimated 5 million more are working fewer hours and drawing smaller paychecks than they were before the country fell into the worst recession in a generation.

In an effort to blunt the effect of the dismal news, Obama made a point of signing legislation Friday that provides additional aid for the jobless and expands and extends tax credits for home buyers.

But few economists thought either measure would substantially change the worsening employment picture or solve the president's increasingly urgent political problem: how to spur the creation of more jobs -- and quickly.

Although most analysts had expected the unemployment rate to rise from September's 9.8%, the increase was larger than expected. And a separate count of the number of jobs on employer payrolls fell by 190,000 last month, a bigger drop than expected.

In California, where unemployment was 12.2% in September, the rate for October will be reported Nov. 20.

The higher U.S. jobless rate was particularly disturbing because it was not the result of a flood of new workers into the labor market, something that often occurs when the economy begins to climb out of a recession. Rather, the latest downturn reflects a continuing decline in the number of people with jobs.

"I'm more nervous about the staying power of the recovery after today's numbers," said Mark Zandi, chief economist at Moody's Economy.com. He said he now expected joblessness to stay in double digits throughout next year, climbing to as high as 11%.

That level of unemployment, stretching as it does over most of the country instead of being confined to one hard-hit region the way the Rust Belt was hit in the early 1980s, presents Obama and his Democratic colleagues in Congress with both economic and political challenges.

On the political front, a bad economy threatens the Democrats' control of Congress as the 2010 off-year elections approach.

Hitting double digits will have an immediate psychological effect across the country, said Robert Reich, who was secretary of Labor during the Clinton administration.

It's "an important political threshold" and will probably force the administration's hand on additional steps to stimulate jobs, said Reich, who now teaches at UC Berkeley.

The Democrats' political vulnerability was clear in the reaction of congressional Republicans.

"The president himself has said that job creation is the ultimate measure of economic performance," House Minority Leader John A. Boehner (R-Ohio) said. "Today's report is just another reminder that American families and small businesses are still struggling as the White House response continues to fall short."

For his part, Obama spotlighted congressional action to extend jobless benefits by 14 weeks in all states and 20 weeks in hard-hit states such as California. The legislation also extends until April 30 a popular tax credit of as much as $8,000 for first-time home buyers. It raises the income limits for the credit and creates a separate credit of up to $6,500 for people who already own a home and are buying one to move into.

Speaking in the Rose Garden, Obama said that his administration had succeeded in stopping "the free fall of the economy" and that his economic team was considering ideas to create jobs. He mentioned additional spending on roads and bridges, further tax cuts for business, steps to make more credit available to small businesses and new efforts to promote U.S. exports.

The October job report contained at least two bright spots. One was that the decline in the number of payroll jobs was once again smaller than the month before. And the number of temporary jobs increased, which often happens before the number of jobs overall starts to climb.

Absent government action, however, those developments and other factors point toward a slow labor market recovery.

What's worse from the White House perspective is the fact that its policy options are limited, both politically and in terms of effectiveness.

Some economists say that what's really needed is another stimulus package like the $787-billion spending bill approved by Congress in February.

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