Pace of US job losses picks up

Analysts fear cuts could soon deepen

National job losses accelerated sharply in September, and analysts said deeper losses could follow this month as the effects of the crisis in financial and credit markets spread through the broader economy.

US employers cut 159,000 jobs last month, more than double the losses in August and the biggest monthly employment decline since March 2003, the Labor Department reported yesterday. The unemployment rate held steady at 6.1 percent.

The steep job losses should erase any lingering doubts that the US economy is in recession, economists said. But what's particularly worrisome, they added, is the dismal job figures don't reflect the full brunt of the financial crisis.

The surveys used to produce job and unemployment estimates were conducted in the middle of the month, before the collapse of Wall Street firm Lehman Brothers Holdings Inc.; the government takeover of insurance giant American International Group; and Monday's stock market meltdown, when the Dow Jones industrial average plunged nearly 800 points.

A survey of hiring managers by the Society for Human Resource Management, a professional association in Alexandria, Va., showed hiring expectations for October at their lowest in four years.

"The US economy is shrinking, and there will be many more awful [Labor Department] reports like this," said Ian Shepherdson, chief US economist at High Frequency Economics, Ltd. of Valhalla, N.Y., in a note to clients. "Payrolls were weak everywhere."

The job numbers were released just a few hours before the House approved a $700 billion plan to buy troubled mortgage-related assets from financial firms, restore confidence, and revive the flow of credit, which has slowed to a trickle. Financial firms are reluctant to lend to each other, fearing their counterparts might have large holdings of mortgage-related assets, which have pulled down major firms such as Lehman and AIG.

That reluctance is creating a credit crunch for consumers and lenders. Without credit, businesses can't expand and hire, and consumers, who drive the US economy, can't buy homes, cars, and other goods.

The length of the economic downturn will likely be determined by whether the bailout eases the credit crunch, economists said. The national economy is almost certainly in recession, they said, even though the National Bureau of Economic Research, a Cambridge nonprofit that dates US business cycles, has yet to make it official.

The US has lost jobs in each of past nine months, shedding more than 750,000 since the beginning of the year. Manufacturing has contracted sharply, with activity in September plunging to its lowest level since 2001, according to a closely watched survey by the Institute for Supply Management, a professional association in Arizona. Consumer spending, which accounts for about 70 percent of US economic activity, was flat in August, the Commerce Department reported this week, and many economists expect it to decline in the quarter that ended Sept. 30.

That would be the first quarterly decline since the early 1990s.

"These numbers reflect a regular old recession, but the credit crunch is something on top of that," said Bill Cheney, chief economist at John Hancock Financial Services in Boston. "Without a credit crunch, we might have a few more bad months, and then it would be over."

Many economists expect the Federal Reserve to cut interest rates when policy makers meet at the end of this month, if not before. Lower interest rates boost the economy by encouraging businesses and consumers to borrow and spend.

The Fed has held its benchmark rate at 2 percent since April, worrying over the summer that surging energy costs would spark broad-based inflation. But the economy has weakened so much that oil prices have plunged and inflation has moderated. Some analysts forecast the Fed could cut rates by half a percentage point.

Yesterday's employment report had little good news. The unemployment rate held steady, but that was largely a result of 120,000 workers dropping out of the labor force, a sign that discouraged job seekers are giving up searches. Only workers actively seeking jobs are counted as unemployed.

Also yesterday, the House voted to extend unemployment benefits for those who have exhausted their benefits. The vote came hours after learning of another jump in the jobless rate and after the House had approved a massive financial rescue plan for Wall Street.

"People are hurting with no end in sight," said Ways and Means Committee chairman Charles Rangel, Democrat from New York. "It is our responsibility as a Congress to stand up and help them weather these tough economic times."

But despite the 368-28 vote in the House, chances of the bill becoming law this year are slim. On Thursday, Senate opponents rejected an effort to bring the legislation to the floor, possibly dooming it for the year. The Senate is in recess for the Nov. 4 elections, and it's unclear if it will reconvene after the election.

"Job losses are accelerating and the credit crunch is adding fuel to the fire," said Sung Won Sohn, an economics professor at California State University, Channel Islands. "This recession could be deeper and longer than expected."

Government, mining, education, and healthcare were among the few sectors adding jobs in September. Manufacturers cut more than 51,000 jobs; retailers 40,000; and construction firms, 35,000. Financial services, a key sector of the Massachusetts economy, shed 17,000 jobs nationally, with nearly half the losses concentrated in investment firms.

Some sectors which play key roles in the Massachusetts economy gained jobs nationally. In addition to education and healthcare, which added 25,000 jobs, two technology- and science-related sectors posted gains. Computer systems design services added 8,500 jobs, and management and technical consulting gained nearly 9,000.

The state will report September employment and unemployment in about two weeks.

Material from the Associated Press was used in this report. Robert Gavin can be reached at rgavin@globe.com.