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 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.
Worried about the economy and their own business prospects, employers cut payrolls by 84,000 in August, marking the eighth straight month of losses.
So far 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.
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.
A toxic trio of housing, credit and financial problems has 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 increase means many companies will feel pressure to reduce their business 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.
At an unemployment center in St. Louis, Kimbel Adams could recite the exact date he was let go from his job as a hospital security guard — April 8. Since then, he has applied for 10 or 15 jobs, with little luck.
“Most of the jobs you can get, it’s hard to make a living off. I could always work at a fast food restaurant and struggle to pay the bills,” Adams said.
Adams, 27, said unemployment checks and irregular gigs as a nightclub bouncer help make ends meet. But eating at restaurants is a thing of the past, and Adams continues to drive a 1991 Buick in spite of the constant maintenance problems.
The number of unemployed rose to 9.4 million in August, compared with 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.
The economy shrank late last year and barely budged at the start of this year. Growth picked up in the spring, thanks to brisk exports and the government’s tax rebates, which energized shoppers at home. But that rebound wasn’t expected to last.
Slower growth overseas will probably cause exports to fall off just as Americans are cutting their spending and the benefits of the rebates disappear.
Job losses were widespread at factories — especially housing-related manufacturers and automakers — as well as construction companies, retailers, mortgage brokers, real-estate firms, hotels and motels, and temporary-help firms, which are looked at as a barometer of demand for future hiring.
Those losses swamped employment gains in government, education, health care and elsewhere.
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