| GEO Business|
| US recovery stumbles as 263,000 jobs lost|
| Updated at: 1440 PST, Saturday, October 03, 2009|
WASHINGTON: US economic recovery hopes got a rude shock Friday as official data showed job losses accelerated to 263,000 in September, pushing the unemployment rate to a new 26-year high of 9.8 percent.
The Labor Department report, one of the best indicators of economic momentum, showed the critical labor market reversed course after months of improvement.
The unemployment rate was up one-tenth of a point from August and in line with most forecasts, but would have been higher if not for 571,000 people dropping out of the labor force.
But payroll losses were far worse than expectations for a loss of 175,000 jobs. The number of job cuts rose sharply after a revised loss of 201,000 in August.
"This confirms that this is going to be a frustratingly slow recovery and it's not going to make a lot of people happy for a long time," said Robert MacIntosh, economist at Eaton Vance.
"This economy needs to grow on its own and it's going to take a long time."
David Rosenberg, chief economist at Gluskin Sheff & Associates, said the numbers "far from validate the overwhelming consensus view that the recession has come to an end."
"Sustainability is the key and there can be no durable recovery without net job creation and organic wage growth," Rosenberg added.
"This report is dismal and disappointing," said Sung Won Sohn, economist at California State University.
"The 'green shoots' in the economy are withering. Technically, the economy may have bottomed, but the job market is lagging behind and struggling."
Vice President Joe Biden said the rise in unemployment was "tough" news but expressed confidence the economy would recover.
"Today's bad news does not change my confidence in the fact that we are going to recover -- we will be producing jobs," Biden told reporters before a meeting in the White House.
Dirk Van Dijk at Zacks Investment Research called the report "just plain ugly."
"While I still think the economy is technically out of the recession, we are probably entering a long period of a jobless anemic recovery."
Cary Leahey, senior economist at Decision Economics said all components of the report were grim with a reversal in payroll trends and slowing income gains.
The report showed the average workweek in the private sector edged down by 0.1 hour while wages were up a tepid 0.1 percent, or 2.5 percent annualized.
Leahey said these details show weakness going forward which will prompt the Federal Reserve to keep interest rates near zero.
"The Fed is going to see the rate of change in earnings has slowed, and that's good for inflation but it suggests you don't have any foundation for consumer spending growth," he said.
The goods-producing sector lost 116,000 jobs in September including 64,000 in manufacturing. Even worse, the services sector shed 147,000 jobs with 39,000 of those in retailing.
Since the start of the recession in December 2007, the figures showed the number of unemployed persons has increased by 7.6 million to 15.1 million, and the unemployment rate has doubled to 9.8 percent, according to the Labor Department.
The US economy contracted at a 0.7 percent pace in the second quarter, nearly emerging from the recession that slashed output by 6.4 percent in the first quarter, based on the most recent official data.
Most economists expect growth to return in the third quarter but say the recovery could fade without job growth.
Robert Brusca at FAO Economics said that some backtracking in recovery is not unusual, "but usually the backtracking comes after more progress has been made."
"The main backtrack this month was from the government sector where 53,000 jobs were lost after having shed 19,000 a month ago," he said.
"Where is the stimulus money? This demonstrates about a clearly as possible how badly designed the stimulus plan was. We spent over one trillion dollars...and one of the objectives was to stabilize state and local employment. That obviously was not done."