Surprisingly dismal data on US employment on Friday heightened fears of a full-blown recession and strengthened the case Democrats are making for further government stimulus to cushion the blow just two months before US elections. The US jobless rate jumped to 6.1 percent in August, nearly a 5-year high as the economy shed 84,000 jobs, the Labour Department said. It was the eighth consecutive month the economy lost jobs.
The last time US employers cut jobs for that many months in a row was October 2001 to May 2002, as the economy was exiting recession and entering a jobless recovery. "This employment report has recession written all over it," said Michael Gregory of BMO Capital Markets in Toronto.
Democratic Representative Nancy Pelosi, the speaker of the US House of Representatives, promised to begin work immediately on a second economic stimulus plan to piggyback on measures approved by Congress and President George W. Bush earlier this year.
That earlier effort to pump $152 billion into the economy helped push US gross domestic product up at a solid 3.3 percent annual rate in the second quarter, after a meager 0.9 percent expansion at the start of the year and a 0.2 percent contraction at the tail end of 2007. Now, many analysts warn the economy may once again be gasping for air. "The report confirms that the improvement in GDP growth to 3.3 percent in the second quarter was just a head-fake," said Nigel Gault, chief US economist for Global Insight in Lexington, Massachusetts.
Democratic presidential candidate Senator Barack Obama has called for a second $50 billion stimulus package, and one of his top economic advisers on Friday challenged rival Republican candidate Senator John McCain to support a fresh effort when lawmakers reconvene before the November 4 election. "We need another round," Obama aide Jason Furman said on CNBC.
The White House, however, rejected the need for another cash infusion to shield Americans from the effects of the economic slowdown, saying job growth has not caught up with the effects of the stimulus. "The economic stimulus plan that we put in place is having the strong impact that we wanted it to have," White House spokeswoman Dana Perino told reporters. "We don't think that we need to consider a second stimulus right now."
McCain, speaking in Cedarburg, Wisconsin, said the weak Labour market showed challenges facing American families. "These are tough times. Today the jobs report is another reminder," he said. He promised to keep taxes low and cut them when possible. McCain in a statement also vowed to enact a jobs program and retrain workers.
To date, the economy has not met the popular definition of recession - two back-to-back quarters of declining GDP - despite a severe housing downturn, volatile financial markets and higher energy prices. Whether it will meet a more-nuanced definition employed by the National Bureau of Economic Research, the accepted recession arbiter, remains to be seen.
But the sharp loss of jobs led many economists to ratchet up warnings about the economy's path now that the boost from government stimulus checks is fading. Adding to those worries is concern one of the bright areas of US economic activity - exports - will dim as a stronger dollar makes US-made goods more expensive in overseas markets and as economies in Europe and elsewhere weaken.
To be sure, some analysts cautioned on Friday that the rise in the unemployment rate from 5.7 percent in July may have been inflated by a temporary benefits program that might have resulted in more unemployed workers than usual being classified as part of the work force.
Still, the economy has shed 605,000 nonfarm jobs since December, a monthly average loss of 76,000 jobs. Factory employment fell by 61,000 in August, with housing-related manufacturers and automakers among the hardest hit, the Labour Department said. Those numbers provided a clear opening for Democrats to attack Bush's record on the economy, and may throw cold water on some of the excitement generated at the Republican convention this week by the surprise selection of Alaska Governor Sarah Palin as McCain's vice presidential running mate.
"This is very good news for the Democrats," said Greg Valliere, an analyst at the Stanford Washington Research Group. "It eliminates any kind of buzz, any kind of momentum the Republicans had," he said. "The news today - on the evening news, in tomorrow's newspapers - is going to be that this report makes it certain we are in recession."