Transcripts

The Jobless Rate Reaches a Five Year High

PAUL KANGAS: Also from Washington today, a surprising hike in the nation's unemployment rate. It jumped to 6.1 percent in August. The Labor Department says the jobless rate is now at its highest level since September of 2003, as employers slashed 84,000 jobs last month. The report raised new concerns about the health of the U.S. economy, and revived debate over whether the Federal Reserve will cut interest rates again to boost growth. Suzanne Pratt reports.

SUZANNE PRATT, NIGHTLY BUSINESS REPORT CORRESPONDENT: A U.S. recession looks far more likely today after the dismal news on the labor front. Not only is the unemployment rate at its highest point in five years, but it's more than 1 percent above its April level of 5 percent. In addition, employers have cut payrolls for eight straight months, and job cuts in June and July turned out to be much deeper than originally reported. All total this year, the U.S. economy has lost 605,000 jobs. Economist John Ryding says, if it walks like a duck and talks like a duck...

JOHN RYDING, CHIEF ECONOMIST, RDQ ECONOMICS: It clearly signals the economy is in recession. And for those who thought otherwise, the rise in the unemployment rate to 6.1 percent was a wakeup call.

PRATT: While factory payrolls suffered the greatest losses, job cuts came in many areas of the economy last month. Wachovia Bank (WB), Ford Motor (F), and UAL (UAUA) were among companies announcing workforce reductions. The weakening labor market raises new questions on Wall Street about the Federal Reserve and interest rates. The central bank is expected to leave rates unchanged when it next meets on September 16th and probably through the end of this year. But some economists are now qualifying their forecasts.

RYDING: I thought monetary policy was on hold at 2 percent; I think that will continue to be the case. But if we're wrong in that assessment and the Fed moves rates this year, I think it's now more likely the Fed would cut rates again than increase rates.

PRATT: JPMorgan economist Bruce Kasman today altered his forecast. He now expects the Fed to keep rates unchanged through the first half of next year. Previously, he was looking for a rate hike at the end of the first quarter.

BRUCE KASMAN, CHIEF ECONOMIST, JPMORGAN: The Fed is watching the unemployment go up. It's seeing energy prices go down. Its concerns about inflation are really moving quite far from the center right now, and it allows the Fed to keep policy rates where they are for an extended period.

PRATT: Most economists say labor conditions are likely to get much worse before they get better. Many expect monthly job losses to continue well into next year, and the nation's unemployment rate to climb as high 6.5 percent. Suzanne Pratt, NIGHTLY BUSINESS REPORT, New York.