Unemployment Climbs to 6.5%, Higher Than Feared

U.S. employers cut payrolls by 240,000 in October, much more severely than expected, while September registered the biggest monthly loss in jobs in nearly seven years, according to a government report on Friday that showed U.S. labor markets were sharply deteriorating.

AP

The Labor Department said the national unemployment rate shot up to 6.5 percent from 6.1 percent in September, the highest since March 1994.

October's job cuts were much worse than anticipated by Wall Street economists who had forecast 200,000 would be lost.

Even more strikingly, the department revised September's losses to 284,000—the highest since November 2001 just after the Sept. 11 terror attacks—and also revised August losses higher to 127,000.

That meant 179,000 more jobs were cut in August and September than previously had been thought. In total over the three months through October, 651,000 jobs have been slashed from payrolls.

In manufacturing alone, a whopping 90,000 jobs were cut in October—a period when 27,000 Boeing assembly workers were on strike. That followed a loss of 56,000 factory jobs in September.

Job losses in August and September turned out to be much deeper. Employers cut 127,000 positions in August, compared with 73,000 previously reported. A whopping 284,000 jobs were axed last month, compared with the 159,000 jobs first reported.

So far this year, a staggering 1.2 million jobs have disappeared.

"We have entered the phase of serious recession conditions. Unfortunately we will encounter more of this going forward," said Richard DeKaser, chief economist for National City in Cleveland. "This is going to increase the urgency for another stimulus package to staunch the slide."

The employment market is much weaker than economists expected. They were forecasting the unemployment rate to climb to 6.3 percent in October and for payrolls to fall by around 200,000.

Job losses were widespread. Factories cut 90,000 jobs, construction companies got rid of 49,000 jobs, retailers cut payrolls by 38,000, professional and business services reduced employment by 45,000, financial activities cut 24,000 jobs, and leisure and hospitality axed 16,000 positions.

All that more than swamped some gains elsewhere, including in the government, as well as in education and health care.

CNBC's experts analyze the jobs numbers in the video at left.

Racing to assemble his new Democratic Cabinet, President-elect Barack Obama will huddle with economic advisers later on Friday. His team has been in close contact with the Bush administration to pave the way for a smooth hand-off of power.

Push For Stimulus

All the economy's woes—a housing collapse, mounting foreclosures, hard-to-get credit and financial market upheaval—will confront Obama when he assumes office early next year. And, the employment situation is likely to get worse.

Many expect the jobless rate to climb to 8 percent, possibly higher, next year. In the 1980-1982 recession, the unemployment rate rose as high as 10.8 percent before inching down.

To provide fresh relief, House Speaker Nancy Pelosi said Democrats, in a lame-duck session later this month, are pushing to enact another round of economic stimulus of around $100 billion.

Average hourly earnings rose to $18.21 in October, a 0.2 percent increase from the previous month, according to the Labor Department report. Over the past year, wages have grown 3.5 percent, but paychecks aren't stretching that far because high food, energy and other prices has propelled overall inflation at a faster pace.

To prevent the country from sinking into a deep and painful recession, the Federal Reserve last week ratcheted down interest rates to 1 percent and left the door open to further reductions.

The economy has lost its footing in just a few months. It contracted at a 0.3 percent pace in the July-September quarter, signaling the onset of a likely recession. It was the worst showing since 2001 recession, and reflected a massive pullback by consumers.

As U.S. consumers watch jobs disappear, they'll probably retrench even further, spelling more trouble for the sinking economy.

That's why analysts predict the economy is still shrinking in the current October-December quarter and will contract further in the first quarter of next year. All that more than fulfills a classic definition of a recession: two straight quarters of contracting economic activity.

Average weekly hours of work held steady at 33.6 in October. At factories, the average workweek also held steady at 40.6 hours, while overtime was unchanged at 3.6 hours.

-- Reuters and The Associated Press contributed to this article.

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