U.S. Unemployment Rate Climbs to 14-Year High of 6.5%

By Bob Willis

Nov. 7 (Bloomberg) -- The U.S. unemployment rate climbed to the highest level since 1994 as payrolls tumbled, signaling that the economic slump inherited by Barack Obama will last well into his first year as president.

The jobless rate rose to 6.5 percent in October from 6.1 percent the previous month, the Labor Department reported today in Washington. Employers cut 240,000 workers after a loss of 284,000 in September, the biggest two-month slide since 2001.

Unemployment may only worsen by the time Obama takes office in January, making it easier for congressional Democrats to push through another economic stimulus package. Obama meets today with his transition economic advisers, including billionaire investor Warren Buffett and former Federal Reserve Chairman Paul Volcker. He’ll also hold his first post-election press conference.

“The U.S. economy is in a very deep recession,’’ John Herrmann, president of Hermann Forecasting LLC in Summit, New Jersey, wrote in a note to clients after the release. “We look for a $500 billion fiscal stimulus from President-elect Obama.’’

Stock futures dropped immediately after the report’s publication, then recouped losses. Futures on the Standard & Poor’s 500 Stock Index were up 1 percent at 913.50 at 8:44 a.m. in New York. Benchmark 10-year Treasury note yields rose to 3.74 percent from 3.69 percent late yesterday.

Economists’ Estimates

Payrolls were forecast to drop by 200,000 after declining by a previously estimated 159,000 in September, according to the median of 78 economists surveyed by Bloomberg News. Estimates ranged from declines of 85,000 to 300,000. October’s unemployment rate compared with a projected 6.3 percent and was the highest since March 1994.

Job losses for August and September were revised up by 179,000. The economy has lost 1.18 million jobs so far this year.

Factory payrolls fell 90,000, the biggest monthly loss since July 2003, after decreasing 56,000 in September. A strike by 27,000 machinists at Boeing Co., which was resolved earlier this month, contributed to the drop, the Labor Department said.

Economists had forecast a drop of 65,000 manufacturing jobs. The decrease included a loss of 9,100 jobs in auto manufacturing and parts industries.

Today’s report also reflected the housing slump and credit crunch. Payrolls at builders dropped 49,000 after decreasing 35,000. Financial firms reduced payrolls by 24,000, after a 16,000 decline the prior month.

Auto Dealers Cut

Service industries, which include banks, insurance companies, restaurants and retailers, subtracted 108,000 workers after dropping 201,000 in the previous month. Retail payrolls decreased by 38,100, led by a loss of 20,300 jobs at auto dealerships, after a decline of 44,800.

Government payrolls increased by 23,000 after a loss of 41,000.

American Express Co., the largest U.S. credit-card company by purchases, said Oct. 30 it would eliminate 10 percent of its workforce, or about 7,000 people, to cut costs amid rising defaults as consumers fail to repay their debts.

The job cuts “will help us to manage through one of the most challenging economic environments we’ve seen in many decades,” Chief Executive Officer Kenneth Chenault said in a statement.

“Broad-based sector weakness in payroll numbers is consistent with past recessions,” John Silvia, chief economist at Wachovia Corp. in Charlotte, North Carolina, said before the report. “Layoff announcements suggest further weakness in the pipeline.”

Hours Worked

The average work week was unchanged at 33.6 hours, today’s report showed. Average weekly hours worked by production workers were also unchanged at 40.6 and average overtime hours remained at 3.6.

Workers’ average hourly wages rose 4 cents from the prior month, or 0.2 percent, to $18.21. Hourly earnings were 3.5 percent higher than in October 2007.

The loss of jobs, plunging home prices, and a record tightening of bank lending may cause consumers and businesses to keep retrenching.

Gross domestic product shrank at a 0.3 percent annual pace in the third quartet and consumer spending fell at a 3.1 percent pace, the most since 1980. Economists surveyed by Bloomberg project the economic slump will deepen this quarter.

The faltering economy and imploding financial markets helped push Obama ahead of Republican rival John McCain, a senator from Arizona, particularly in hard-fought states like Ohio and Florida where unemployment rates have jumped.

Americans also gave Democrats larger majorities in the House and Senate as voters blamed Republicans for the economic malaise. House Speaker Nancy Pelosi said this week Democrats may seek two stimulus packages if President George W. Bush limits the size of a plan to be considered during the post-election session later this month.

To contact the reporter on this story: Bob Willis in Washington at bwillis@bloomberg.net