US Unemployment Jumps to 5-year High

The US unemployment rate unexpectedly jumped to a five-year high of 6.1 per cent, according to figures released on Friday, suggesting a bleaker picture of the world’s largest economy.

Stocks entered bear-market territory for the first time since July after data from the Labor Department showed employers shed 84,000 jobs in August – the eighth consecutive month of job losses – significantly worse than economists were expecting.

The August jobs report could have a substantial effect on thinking at the Federal Reserve.

Hawkishness at the US central bank had already largely subsided after the recent falls in commodity prices, and policymakers now have to worry that unemployment may be climbing faster than they anticipated.

An influential minority of Fed officials now think that further rate cuts cannot be ruled out. However, most policymakers still have what some call a soft inflation bias, in that they still believe the next move in rates is more likely to be up than down, though they are increasingly prepared to keep rates on hold for an extended period.

In the US, news of the unemployment data saw the S&P 500 down 1.3 per cent, at lunchtime, taking its decline over the past five days to 6.2 per cent.

The deterioration in the labour market came as a reminder of the difficulties facing the US as it fights the housing crisis and sluggish consumer spending.

Hopes of a stronger US economy had grown last week after the government announced an upward revision to its assessment of GDP growth in the second quarter.

US Unemployment Jumps to 5-year High, Financial Times
9/5/2008 1:00:52 PM