U.S. Jobless Rate Soars as Payrolls Plunge by 598,000

By Shobhana Chandra

Feb. 6 (Bloomberg) -- The unemployment rate in the U.S. climbed to the highest level since 1992 in January and payrolls tumbled as the recession showed no sign of abating.

The jobless rate rose to 7.6 percent from 7.2 percent in December, the Labor Department said today in Washington. Payrolls fell by 598,000, the biggest monthly decline since December 1974, after dropping by 577,000 in the previous month.

The loss of jobs, at employers ranging from manufacturers like Caterpillar Inc. to retailers such as Macy’s Inc., is shattering consumer confidence and crippling spending. President Barack Obama is likely to use the first employment report since he took office to prod lawmakers into agreeing on a compromise economic stimulus package by the end of this month.

“We’re losing jobs at an alarming pace and bracing for more weakness,” Scott Anderson, senior economist at Wells Fargo & Co. in Minneapolis, said before the report. “The private sector is flat on its back at this point. The government needs to step in with a stimulus, the sooner the better.”

Treasuries slipped while stock-index futures headed higher after the figures. Contracts on the Standard & Poor’s 500 Stock Index gained 0.3 percent to 843 at 8:34 a.m. in New York. Benchmark 10-year note yields rose to 2.92 percent from 2.90 percent late yesterday.

Deeper Cuts

With a revised decline of 597,000 jobs in November, revisions subtracted 66,000 workers from previously reported payroll figures for the last two months of 2008. The U.S. economy has now lost a total of 3.57 million jobs since the recession started in December 2007, the biggest employment slump of any economic contraction in the postwar period.

Last month’s losses mark the first time since records began in 1939 that job cuts exceeded half a million in three consecutive months.

Payrolls were forecast to drop 540,000, according to the median estimate of 75 economists surveyed by Bloomberg News. Estimates of the decrease ranged from 400,000 to 750,000.

The jobless rate was projected to jump to 7.5 percent. Forecasts ranged from 7.3 percent to 7.6 percent.

The House of Representatives last week passed an $819 billion stimulus package that includes tax cuts and infrastructure spending. The Senate is working on a plan that is closer to $900 billion.

Obama Warning

“A failure to act and to act now will turn crisis into catastrophe and guarantee a longer recession,” Obama told lawmakers on Feb. 4 in Washington.

Today’s report showed factory payrolls decreased by 207,000, the biggest drop since October 1982, after declining 162,000 in the prior month. Economists had forecast a January drop of 145,000. The decrease included a loss of 31,300 jobs in auto manufacturing and parts industries.

Caterpillar, the world’s largest maker of construction equipment, on Jan. 30 said it plans to cut 2,110 workers in addition to the 20,000 reductions it reported earlier in the month.

Payrolls at builders declined 111,000 after decreasing 86,000.

Service industries, which include banks, insurance companies, restaurants and retailers, subtracted 279,000 workers after cutting 327,000. Retail payrolls decreased by 45,100 after a decline of 82,700. Financial firms reduced payrolls by 42,000, after a 27,000 decrease the prior month.

Government Jobs

Government payrolls increased by 6,000 after shrinking by 10,000 the prior month.

Saks Inc., Target Corp., Starbucks Corp. and Home Depot Inc. last month reported plans to reduce workers. Others following suit in February include Macy’s. The second-largest U.S. department-store company said it will cut 7,000 jobs, eliminate executives’ merit increases for 2008, and trim its contribution to staff 401(k) retirement-savings plans.

“This is a time when nothing should be considered a sacred cow,” Macy’s Chief Executive Officer Terry Lundgren said on a conference call with investors and analysts.

News of job losses continued this week. PNC Financial Services Group Inc. will reduce almost 10 percent of its workforce by 2011, and Estee Lauder Cos., the maker of Clinique and Bobbi Brown cosmetics, will slash 2,000 jobs over the next two years.

Post Office

Government jobs are now also in jeopardy. The U.S. Postal Service plans to trim headcount through attrition and early retirement, and has asked lawmakers to allow it to reduce its six-days-a-week delivery schedule to pare expenses.

The average work week remained at 33.3 hours in January. Average weekly hours worked by production workers fell to 39.8 hours from 39.9 hours, while overtime decreased to 2.9 hours from 3 hours. Average weekly earnings rose by $1.67 to $614.72.

Workers’ average hourly wages rose 5 cents, or 0.3 percent, to $18.46 from the prior month. Hourly earnings were 3.9 percent higher than in January 2008. Economists surveyed by Bloomberg had forecast a 0.2 percent increase from December and a 3.6 percent gain for the 12-month period.

With today’s report, the Labor Department also issued revisions to payrolls going back to 2004. The annual benchmark revision, which aligns the data with corporate tax records and covers the period from April 2007 to March 2008, subtracted 89,000 workers from payrolls in the 12 months ended in March, exceeding the 21,000 reduction Labor estimated in October.

To contact the reporter on this story: Shobhana Chandra in Washington schandra1@bloomberg.net