Jobless rate surges past 10 percent

The nation’s unemployment rate broke the 10 percent barrier last month as employers continued to slash jobs in an effort to lower their costs and stay in business.

The 190,000 jobs cut in October was the latest in an unprecedented string of large monthly job losses that have totaled 7.3 million since the recession began in December 2007, the Labor Department reported Friday. President Obama called the job news “sobering,” signed an extension of unemployment benefits into law and said he is considering new legislation to spur job growth.

The pace of job losses has slowed since the beginning of the year, but businesses have continued to cut their labor costs as they grapple with a dramatic drop in demand from consumers, economists said. This not only has enabled many to stay in business, but also has generated surprisingly good profits for many firms and bolstered their stock prices even during the economic downturn.

“It appears that many firms have realized that they can meet demand with a much smaller head count,” said Harm Bandholz, an economist with UniCredit Markets & Investment Banking. “Instead of hiring again, they prefer to use the resulting productivity gains to bolster their balance sheets. The surveys among small businesses suggest that they are not inclined to sacrifice this ’new efficiency’ any time soon.”

Friday’s jobs report showed that businesses are cutting labor costs not only by slashing jobs but also by hiring 34,000 temporary workers when additional staff was needed, and cutting hours wherever possible. Employers often add temporary workers before they hire full-time staff if they are unsure whether an increase they are experiencing in demand will be temporary or permanent.

But economists view the addition of temporary jobs as a harbinger of improvement in the job market, because those same employers within a few months may decide they need full-time staff to handle the workload.

In the manufacturing sector, where orders have picked up noticeably in recent months, employers are adding to the factory workweek and even adding to overtime hours rather than hiring new full-time workers, reflecting their uncertainty over whether the increase in business will continue.

These types of “make-do” measures by employers resulted in a stunning 9.5 percent increase in productivity during the summer quarter - the biggest gain in six years - as existing workers were called on to deal with the robust increase in business activity.

Sung Won Sohn, an economics professor at California State University, Channel Islands, said that employers kept their most skilled employees on hand after layoffs, and that many of those who remain are voluntarily working harder out of fear of losing their jobs.

“The tough question is just how far companies can push their remaining workers before they decide that they simply must bring in new staff,” said Nigel Gault, an economist with IHS Global Insight. He is among the more optimistic forecasters who believe the job-cutting trend will end soon as businesses realize they cut too many jobs during the recession.

“We expect productivity growth to slow sharply, and that firms will have to rehire sooner after this recession than after the 2001 one,” he said. It took two years for job growth to resume after the 2001 recession.

President Obama bemoaned the news as he signed a $24 billion bill extending jobless benefits for the long-term unemployed. The report showed that the average length of unemployment is at a record high of more than six months, or 26.9 weeks. The unemployment legislation also included further tax write-offs for businesses and an extension of a homebuyers tax credit program that helped to boost the economy during the summer.

Mr. Obama said he and congressional Democratic leaders are considering further measures to try to stimulate more jobs, including creating an infrastructure bank to finance construction projects and more spending on green energy projects.

“I won’t let up until Americans who want to find work can find work, and until all Americans earn enough to raise their families and keep their businesses open,” he said.

Republicans and business groups warned that Mr. Obama’s top priorities in Congress - extending health insurance to millions of people who do not get it through their employers and imposing a cap-and-trade regime on carbon emissions to curb climate change - will only add to the cost of hiring unemployed workers and prevent some businesses from doing so.

“Health care mandates will likely raise the cost of labor and thereby discourage hiring,” said John Silvia, chief economist at Wells Fargo Securities. “Cap-and-trade will likely increase the cost of energy and transportation for employers and thereby reduce any funds left to hire workers.”

Mr. Silvia said worries about these large new potential costs on businesses at present are “more than offsetting any positive impact on jobs from the fiscal stimulus.”

Analysts said the surge in the unemployment rate to a 26-year high of 10.2 percent from 9.8 percent in September was long anticipated but still packed a powerful psychological punch.

Every group, from teenagers to minorities and adults, experienced job losses. And nearly every sector lost jobs except health care, which continued to stand out as the only sector adding jobs during the recession.

Wages remained severely depressed in October. Average hourly earnings were up by only 2.4 percent from a year earlier, and when cuts in hours at many businesses were taken into account, that trimmed weekly take-home pay to a 0.9 percent yearly gain.

The job losses and anemic growth in incomes are the reasons consumers continue to pull back and refrain from spending - a factor that endangers the economy’s fragile recovery. A separate report from the Federal Reserve Friday showed that consumer purchases using credit plunged at a 13 percent annual rate in recent months.

“Companies’ reluctance to hire is the main impediment to a self-sustained recovery,” said Mr. Bandholz. “Without higher real incomes, households won’t be able to increase their expenditures enough to ensure such an upswing.”