U.S. jobs outlook likely to worsen

WASHINGTON — As bad as Friday's jobs report was, showing October's unemployment rate jumping sharply to 10.2 percent, from 9.8 percent in September, the outlook is likely to worsen for U.S. workers well into next year.

Economists expect the jobless rate to keep climbing, perhaps above 11 percent, as employers produce more with fewer workers and shy away from hiring.

The nation's unemployment rate leapt to its highest level since April 1983, even as the pace of job losses slowed sharply, the Labor Department said Friday.

Employers shed 190,000 jobs last month, the slowest pace since the devastating recession began in December 2007. The Bureau of Labor Statistics also revised its August and September unemployment numbers to reflect that 91,000 fewer jobs were lost over those two months than first reported.

That trend is positive. It shows that the torrid pace of job losses in the first half of the year has slowed dramatically. That supports the recent report that the U.S. economy grew at a 3.5 percent annual rate from July through September.

The professional and business services sector added 18,000 jobs in October. Temporary employment, which usually precedes a return to broader hiring, was up by almost 34,000 last month, the third straight month of gains.

Yet the surge in the unemployment rate overshadowed all else.

"History tells us that job growth always lags behind economic growth," President Obama cautioned in a statement from the White House shortly after he signed a new $24 billion economic-stimulus bill that provides tax incentives to homebuyers and extends jobless benefits for the longtime unemployed.

Discouraged workers

When discouraged workers and underemployed ones are factored in, a more broadly defined unemployment rate stands at 17.5 percent. Some 35 percent of the jobless, about 5.6 million Americans, have been unable to find work for more than six months.

Many economists had expected unemployment to hit 10 percent this year, but few thought the rate would reach that by October. After Friday's sharp jump, they began revising job forecasts down.

Mark Zandi, the chief economist for Moody's Economy.com, thinks the jobless rate could hit 11 percent by mid-2010.

"Unemployment is rising while labor force is declining. Once labor force begins to rise, this will add to unemployment, as many coming back in will be unemployed," Zandi said.

Smaller firms, which provide the most jobs, remain cash poor and credit starved. They're expected to continue shedding workers or at best hold the line.

"The job market isn't deteriorating as fast as it was earlier in the year, but it isn't going to improve until next spring at the earliest," Zandi said.

Sageworks, a financial firm that specializes in data about privately held companies, reported that small firms will keep cutting payrolls.

"They're going to reduce their overhead. They're going to reduce their payroll. They represent at least 50 percent of the employment in the United States, and that doesn't look like it's coming back anytime soon," said Drew White, the group's chief financial officer.

Only four sectors of privately held companies are showing revenue growth before expenses this year, he said: health care, utilities, education and information.

Grounds for optimism

Still, some analysts found grounds for optimism.

"What people aren't talking about today and won't talk about for a couple of days is that if you take the peak of job losses and plot the trend, we still get to zero jobs lost sometime in the first quarter of 2010. That means we start adding jobs the next month after we hit zero," Fred Fraenkel, the vice chairman of investment manager at Beacon Trust, wrote in a research note.

"Most people are talking about the U.S. starting to add jobs back in the second half of next year. It looks like that will start in the first half of the year, not the second half."