Bleak jobs data keep economy at center stage

John W. Schoen Senior producer • Profile • E-mail

A sharp and surprising jump in the unemployment rate reported Friday makes it likely the economy will remain front and center in a hotly contested presidential campaign just entering its final stage.

The unemployment rate in August jumped to 6.1 percent, the highest level in five years, from 5.7 percent in July, the government reported. Businesses cut 84,000 jobs — the eighth month in a row of shrinking payrolls.

The economy already was the No. 1 issue for voters, but the increase in the psychologically important jobless rate ensures both Sens. John McCain and Barack Obama will have to continue to address the nation's economic troubles as they stump for votes over the next two months.

Battered by the housing slump and credit crunch, the economy has lost some 605,000 jobs so far this year. Friday’s report included revised data for previous months, showing much bigger job losses for June and July.

Initially contained to a few hard-hit sectors like construction and financial services, the weakness in the job market has now spread to most industries. Factories in August cut 61,000 jobs, professional and business services slashed 53,000, construction firms shed 8,000, retailers cut 20,000 and the leisure and hospitality industries lost 4,000. The only sectors adding jobs were government, education and health.

“The thing to be most concerned about is the fact that the job losses are now not  just concentrating on construction anymore,” said Mark Zandi, chief economist at Moody’s Economy.com. “They're coming across all sets of industries, and that means that this thing can become self-reinforcing. And that's the real risk.”

Special feature Compare candidates McCain, Obama on economic issues

The accelerating pace of job losses has reinforced the slumping economy as the top concern among voters. But it's not clear that either candidate can have much short-term impact on the economy. Much of the economic debate on the campaign trail has centered on differences in tax policies.

Specific proposals to spur growth involve increased government spending on everything from developing alternative energy sources to rebuilding crumbling roads and bridges. But both candidates' proposals would increase the national debt. The candidates have been largely silent on the huge financial strains soon to hit Social Security and Medicare.

Some of the thorniest economic problems are outside the candidates' control: Rising inflation is being fueled by increased global demand for commodities from corn to steel. The mortgage meltdown and resulting credit crunch are proving stubbornly resistant to the Federal Reserve’s efforts to push large quantities of money into the financial system. Job cuts lost to globalization will not be easily restored.

For now, the best hope is that the Fed’s deep cuts in interest rates will help pull the housing market out of its slump before higher food and energy costs spark a persistent bout of inflation.

The Fed is also hoping that a weak economy will slow demand, keeping inflation in check. On Wednesday, the Fed released its “beige book” report, in which nine of its 12 regional districts  reported the economy remained weak.

MORE FROM EYE ON THE ECONOMY

Eye on the Economy Section Front

Commercial real estate bust looms NYT: Ex-homeowners forced into shelters Red Tape: Fees, not loans, help banks recover Recession ends in 79 metro areas Economists: The Great Recession is over, but ... Profit pressures could stall stock market rally NYT: Obama aides act to fix safety net Job losses overshadow recovery signs Survey: CEOs still not ready to hire, spend Fed likely to continue emergency aid programs Eye on the Economy Section Front   Add Eye on the Economy headlines to your news reader: