Jobless rate trips market

Associated Press

NEW YORK — A worse-than-expected jobless report ignited another dizzying stock market selloff Friday and prompted President Bush to attempt to reassure the nation that he has a plan for revving up the economy.

The nation’s unemployment rate swelled to 4.9 percent in August as job losses in manufacturing passed 1 million for the yearlong national slowdown.

The increase in the monthly jobless rate, 0.4 percentage points, was the biggest in six years.

"The slowdown is real and it’s affecting too many lives and we’re concerned about it," President Bush said at the White House after meeting with anxious Republican leaders.

The jobless report sent stocks tumbling on Wall Street. The Dow Jones industrial average closed down almost 235 points, coming within striking distance of its low for the year. The Standard &Poor’s 500 index closed at its lowest level in nearly three years.

Analysts blamed the losses on Wall Street’s growing fears that the economy is worsening and more bad news, rather than a turnaround, is ahead.

"People are getting increasingly concerned that the consumer, who has held the economy up so far, will begin to retrench and the economy will lose what little momentum it has and this will turn into a recession," said Bob Barker, investment consultant at Dain Rauscher.

The report Friday virtually guaranteed further interest rate cuts by the Federal Reserve to try to revive the economy, analysts said.

The Federal Reserve has reduced interest rates seven times this year to ward off recession. Analysts are expecting at least a quarter-point cut at the Fed’s Oct. 2 meeting, if not a return to the half-point moves of earlier in the year.

" ‘Ugly’ is not a strong enough term to describe this report," said Joel Naroff, president and chief economist of Naroff Economic Advisors. "It was brutal."

The unemployment report tends to indicate where the economy has been rather than where it is going. The jobless rate often continues rising even after the economy starts to improve, reflecting the fact that businesses are afraid to hire back workers until they are certain the rebound is sustainable.

But economists were worried about the report’s effect on consumers, whose spending has kept the economy afloat during the sluggish past year.

"When the economy needs consumers’ support most, this bad news comes along," said Richard Yamarone, economic research director for Argus Research Co.

The Bush administration is counting on the Fed’s aggressive credit easing as well as federal tax rebate checks to help revive the economy. Republicans, with an eye toward next year’s midterm elections, see trouble if conditions worsen.

President Bush gave anxious Republican leaders an emergency Oval Office audience on Friday, then spoke to reporters from outside the Oval Office.

"We’ve got a plan to get our economy moving so Americans can find work," the president said.

Privately he considered calling for across-the-board budget cuts next year if the economy worsens and spending starts eating into Social Security reserves.

The last-minute huddle was called after Bush’s budget director, Mitch Daniels, gave lawmakers on Capitol Hill the worrisome news that, by the end of the month, the government could be dipping into Social Security reserves. That stoked Republican fears that Democrats could, in next year’s elections, accuse the GOP of jeopardizing Social Security.

"Any American out of work is too many Americans out of work and that’s why it’s absolutely essential that we work together to put a growth plan in place to create jobs for hardworking Americans," Bush said.

"It starts by having a responsible budget that meets our nation’s obligations without affecting Social Security or dipping into Social Security."