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U.S. Economy Remains Vulnerable, New Reports Show

BY Admin  November 1, 2002 at 1:38 PM EST

The jobless rate in October was 5.7 percent, the Labor Department reported — up slightly from 5.6 percent in September. October was the second month in a row with payroll cuts, which came largely in manufacturing, construction and temporary employment services.

The Labor Department also reported a slight decrease in the average length of the work week, which dropped to 34.1 hours in October from 34.2 in September.

Meanwhile, U.S. consumers decreased their spending 0.4 percent in September, the first drop since November 2001. Personal spending has been largely responsible for recent economic gains and accounts for two-thirds of the nation’s economic activity. A reduction in spending on big-ticket items such as cars and appliances led the decline, dropping 5.1 percent.

Consumer spending had been credited with the growth in the gross domestic product that was reported on Thursday. The GDP, which measures total output within U.S. borders, grew at an annual rate of 3.1 percent from July to September.

The Commerce Department also reported Friday that personal income grew by 0.4 percent in September. The combination of a decrease in spending and an increase in income points to increasing caution among U.S. consumers. The personal saving rate, the percentage of personal income left over after taxes and spending, rose to 4.2 percent from 3.4 percent in August. That’s the highest rate since June.

“We are clearly hitting a soft spot with consumers worried about just about everything in the world from Iraq to terrorists,” David Wyss, chief economist at Standard & Poor’s in New York told the Associated Press.

“I am not sure that they are going to bounce out of this.” he added. “It could be a rather blue Christmas for retailers.”

Business activity remains sluggish, as shown by a survey of purchasing executives who buy raw materials used in manufacturing. The Institute for Supply Management released the report and said its index of business activity declined to 48.5 in October compared with 49.5 in September. An index above 50 signifies growth in manufacturing, while a figure below that represents a contraction.

The Federal Reserve, in a recent report issued before today’s data was released, painted a somber picture of the economy during September and early October. The Fed’s Open Market Committee meets on Wednesday and may decide to lower interest rates below the current rate of 1.75 percent, which is itself at 40-year low.

“The decline in jobs in the month of October, the uptick in the unemployment rate and especially the 0.4 percent month-to-month drop in aggregate hours worked, maybe are enough to push the Fed into easing monetary policy at next week’s meeting of the FOMC,” John Lonski, chief economist at Moody’s Investors Service told Reuters.