Unemployment rate to rise, could hit 10 percent

[October 02, 2009]  WASHINGTON (AP) -- The unemployment rate hasn't topped 10 percent since June 1983, but it could return to that painful level soon -- possibly as early as Friday, when the Labor Department issues its monthly jobs report.

Even as the economy shows signs of life, some employers are still cutting jobs, and many more are reluctant to hire after enduring the worst recession since the 1930s.

A return to 10 percent unemployment could pose political problems for President Barack Obama, who pushed through an ambitious $787 billion stimulus package in February intended to "save or create" 3.5 million jobs by the end of 2010. The administration said earlier this month about 1 million jobs have been saved so far.

But Republicans charge the stimulus has been an expensive failure as a net total of about 3 million jobs have been lost since its passage.

The Labor Department is scheduled to release unemployment figures for September on Friday. Wall Street economists expect the rate to rise slightly to 9.8 percent, from 9.7 percent in August. Employers are forecast to have cut 180,000 jobs, which would be the fewest since August 2008.

Obama said in a speech earlier this week that his efforts have "broken our economic freefall," though he acknowledged the labor market hasn't improved.

Also Friday, the Commerce Department is scheduled to release a report on August factory orders, which include both durable and non-durable goods. Economists surveyed by Thomson Reuters expect factory orders rose 0.7 percent following a 1.3 percent gain in July.

But the possibility of a surprise exists. Economists' forecasts for the August figure ranged from a decline of 1.5 percent to an increase of 2.1 percent, underscoring the uncertainty that exists as the economy attempts to rebound from the longest recession since the 1930s.

The reports will follow largely discouraging economic data Thursday.

First-time jobless claims rose more than expected last week to a seasonally adjusted 551,000, the Labor Department said. Economists viewed it as a sign that employers remain reluctant to hire.

And factories are struggling to mount a sustainable rebound. A gauge of manufacturing activity came in at 52.6 for September, the Institute for Supply Management said -- enough to signal growth for the second straight month but still down from August.

And even though consumer spending jumped by the most in nearly eight years in August, due partly to the government's Cash for Clunkers program, economists question whether the improvement can be sustained. They note that households face stagnant wages, tight credit conditions and other obstacles.

"The economy is not moving quickly from recession to expansion. It is moving in a very halting way," said Mark Zandi, chief economist at Moody's Economy.com. "Given the severity of the downturn, we are not going to come roaring back."

The news pummeled the stock market, which dropped sharply. The Dow Jones industrial average dropped 203 points.

Consumer spending rose a bigger-than-expected 1.3 percent in August, the Commerce Department reported Thursday. That's the best gain since October 2001, when the country was recovering from the Sept. 11 terrorist attacks.

But about a third of that increase came from the government's Cash for Clunkers program, which provided rebates of up to $4,500 to consumers who traded in their cars for new vehicles. Once the trade-in program ended, car sales fell back. General Motors and Chrysler said Thursday that their sales fell more than 40 percent in September. Ford reported a 5.1 percent drop.

The August spending report also showed personal incomes continue to lag: They edged up 0.2 percent, helped by an increase in the minimum wage that took effect in July.

Economists fear weak income growth means that the jump in consumer spending won't last. Consumer spending is vital for a sustained recovery because it accounts for about 70 percent of all economic activity.

The jump in spending and the much smaller gain in income sent the personal savings rate down to 3 percent in August, from 4 percent in July. Analysts think Americans will keep saving more in the months ahead, trying to rebuild their nest eggs.

Many economists believe the economy is growing again after the longest recession since World War II -- perhaps at a rate of 3 percent or more in the just-ended third quarter. But David Wyss, chief economist for Standard & Poor's in New York, said he expects growth to slip to an anemic 0.8 percent in the final three months of this year, and perform only a little better next year.

"The good news is that it will be positive, but it will not be a barnburner," he said.

Weak growth like that would not be strong enough to bring down the unemployment rate. Wyss predicts it will peak at 10.4 percent around the middle of next year. The recession has already eliminated almost 7 million jobs.

A separate report from the Commerce Department showed that construction spending rose 0.8 percent in August, including the biggest increase in housing activity in nearly 16 years. But spending for office buildings, hotels, shopping centers and government projects all declined.

The increase in initial jobless claims, meanwhile, comes after three weeks of declines. Weekly claims have been trending down since the spring, but the decline has been painfully slow. The four-week average, which smooths out fluctuations, dropped to 548,000, down from its peak but still well above levels associated with healthy economy.

The number of people remaining on the rolls, meanwhile, fell 70,000 to 6.09 million, the lowest level since the week of April 4.

But when federal emergency programs are included, the total number of jobless benefit recipients was nearly 9 million in the week that ended Sept. 12. That's little changed from the previous week. Congress has added up to 53 extra weeks of benefits on top of the 26 typically provided by the states.

The House agreed last week to tack on another 13 weeks, but that measure stalled Thursday in the Senate.

[Associated Press; By CHRISTOPHER S. RUGABER and MARTIN CRUTSINGER]

Copyright 2009 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.