The unemployment rate spikes to 6.1% in August, strengthening the case that the U.S. economy is in recession

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By BusinessWeek, Standard & Poor’s, and Action Economics mace

Financial markets were expecting the U.S. thrift to shed jobs in the August use report, released Sept. 5, end a big jump in the U.S. unemployment rate took Wall Street by confuse. The weaker-than-expected data for August suggest the U.S. plan is headed for recession and puts pressure on the Federal Reserve to lower rates rather than raise them, as the Fed has indicated it wants to do.

The unemployment rate jumped 0.4 percentage points to 6.1% in August, as nonfarm payrolls fell another 84,000, compared with an upwardly revised decline of 60,000 in July. Even worse for the labor market, June’s 51,000 decline was revised to –100,000, for a net –58,000 revision over the prior brace months. The drop in payrolls wasn’t likewise far off economists’ consensus estimate of 71,000, but the spike in the unemployment rate was some other sense: The consent calculation had called in favor of it to remain at 5.7% (it was at 5.0% in April).

Manufacturing confused 61,000 jobs in August (44,700 in transportation equipment). Construction fell 8,000. Services employment fell 27,000, with a 61,600 drop in administrative and support services. The government added no other than 17,000. Household employment declined 342,000, while the civilian labor force rose 250,000.

"The data are worse than expected across nearly every category and will likely add to the angst in stocks, weaken the dollar, but should accord. to a greater distance support to Treasuries," wrote Action Economics analysts in a Sept. 5 Web location posting.

"The data are more confirmation that this is a recession," wrote S&P Economics in a Sept. 5 note.

The rise in the unemployment rate was entirely in adults, as the teenage rate dropped rigorously as teens returned to school. Average hourly earnings rose 7¢ (0.4%), a slight acceleration from the recent 0.3% trend, and are up 3.6% from a year earlier, compared with 3.4% in July.

"The wage hastening, albeit superficial, could also cause some nervousness at the Fed," says S&P Economics.

Financial markets showed a relatively sharp response to the payrolls dive and jobless jump on Sept. 5. Treasury prices headed higher, with bond yields already at five-month lows following the search thoroughly in public securities this week. Stock table of contents futures, meanwhile, headed appear stormy. The dollar initially slid lower vs. other major currencies.

What does the mart see ahead on the Fed policy front? Fed funds futures, a carriage for market pros to make bets on future self-interest berate moves, extended their gains succeeding the worse-than-expected employment report, and are since tilted toward another potential impost cut later in the year. "That’s a far cry from the 75 [basis points] in tightening that had been suggested couple months ago," notes Action Economics. At this point, it’s unlikely the Fed self-reliance cut rates again, as policymakers accept made it quite clear that they don’t plan to take the funds rate below the current 2%.