An unexpectedly steep 84,000 jobs were lost in the US last month as the national unemployment rate hit 6.1 per cent.
US unemployment hits five-year high
Mr McCain called for more job training, while Mr Obama said tax cuts for working families and aid for states were needed. The Bush administration insisted the economy was "fundamentally sound", and that an additional stimulus programme was not needed. A total of 605,000 employees have been slashed from payrolls so far this year - nearly 250,000 in the past three months alone - which private sector analysts said clearly implied a heightened risk of an economic contraction.
"According to our estimates, the sharp rise in the unemployment rate over the past six months translates into a recession probability of 70 per cent, which is higher than in 1990-1991 and 2001," said Harm Bandholz of UniCredit Markets in New York, referring to the two most recent recessions. The speaker of the house of representatives, the California Democrat Nancy Pelosi, renewed a pledge to seek a second economic stimulus programme to carry on from one earlier in the year that has now largely been paid out to consumers.
The department of labour's jobs report caught financial markets by surprise because the losses were above expectations and the June and July figures were revised upwards. The department said a total 58,000 more jobs were lost in June and July than it had previously thought. Stock prices initially fell but largely recovered by the close of trading because of bargain hunting for the beaten-down shares of financial companies. The Dow Jones industrial average ended up 32.73 points at 11,220.96, while the high tech-laden Nasdaq Composite Index was off 3.16 points, at 2,255.88.
The dollar similarly fell in early trading but edged higher against the euro later in the day. Short-term interest rate futures, which little more than a month ago signalled a Fed rate hike was likely by the year's end, shifted to suggest there was a small chance the central bank could lower borrowing costs this year. Analysts said the bleak hiring data probably meant that Federal Reserve policy makers would feel obliged to keep interest rates low for an extended period.
"The economy is clearly deteriorating," said Gary Thayer, a senior economist for Wachovia Securities in St Louis. "We're also seeing weakness around the globe, so there's less reason for the Fed to focus on inflation and more reason to focus on getting the economy back on its feet." * Reuters