U.S. unemployment rate jumps to 26-year high of 9.7%

The U.S. unemployment rate jumped to a 26-year high of 9.7% in August as nonfarm payrolls fell by 216,000, the 20th consecutive monthly decline, the Labor Department estimated Friday.

U.S. payrolls have dropped by 6.9 million to a total of 131.2 million since the recession began in December 2007, the government data showed. Unemployment has increased by 7.4 million during the recession to stand at 14.9 million.

"Joblessness continues to mount, which will only make it harder for households to repay debt and build savings, thereby impeding a consumer-led recovery," wrote Sal Guatieri, senior economist for BMO Capital Markets.

The 216,000 decline in payrolls was close to market expectations of a 233,000 drop, but the unemployment rate rose higher than the 9.5% level expected. The unemployment rate was 9.4% in July. See Economic Calendar.

It was the smallest decline in payrolls since August 2008.

Payrolls declined an upwardly revised 276,000 in July. In June and July, payroll losses were revised up by 49,000. Read the full government report.

Payroll losses have moderated in most industries in the past two months after severe declines earlier in the year. In the past three months, payroll losses have averaged 318,000 per month, compared with 491,000 in the previous three-month period.

Although payroll losses have moderated, the loss rate in the past three months is as bad as it was at the worst of the 1980 and 1982 recessions, said Charles Dumas, an economist for Lombard Street Research. "You have to have faith to think that job losses at the worst rate of 1980 and 1982 are consistent with level to growing GDP," Dumas said.

Economist Robert Brusca said the trend is favorable, adding that he couldn't understand the pessimism of so many observers. "I feel like a parent locked in a car with a little kid screaming " DADDY! ARE WE THERE YET?"

Many economists think the unemployment rate will top out near 10%, late this year or early next year. "What really matters is when payrolls and the jobless rate will turn, and we still believe that the timeframe on both is soon, probably sooner than most other forecasters expect," wrote Stephen Stanley, chief economist for RBS Securities.

Details of the August report were generally weak, however.

Payrolls fell in most sectors of the economy except for health care. Total hours worked in the economy dropped by 0.3%, long-term unemployment worsened, and the number of people working just part time who wanted full-time work reached 9.1 million, up 278,000.

The number of people who've been out of work longer than six months nudged up to 5 million, representing about one-third of the unemployed.

An alternative measure of unemployment that includes discouraged workers and those forced to resort to part-time work rose to 16.8% from 16.3%, marking the highest on record dating back to 1995.

Average hourly earnings on the month rose 6 cents, or 0.3%, to $18.65 an hour. In the past year, average hourly earnings are up 2.6%.

Of the 271 industries as tracked by the Labor Department, 35% were adding workers in August, according to a survey of hundreds of thousands of business establishments.

Private-sector employment fell by 198,000 in August. Employment in the private-sector is now lower than it was 10 years ago.

Government employment fell by 18,000.

Goods-producing industries cut 136,000 jobs, including 65,000 in construction and 63,000 in manufacturing.

The manufacturing workweek for August was unchanged at 39.8 hours, while hours worked in manufacturing fell 0.5%. Of 83 manufacturing industries, 29.5% were adding jobs in August, the highest percentage since May 2008.

Employment in motor-vehicle manufacturing fell by 15,000. Employment in food, beverage and petroleum manufacturing rose slightly.

Service-producing industries reduced their rolls by 80,000 jobs in August, the fewest in a year. Retail cut 10,000 jobs, despite a gain of 5,000 at auto dealers. Financial services shed 28,000 and business services cut 22,000, including 6,500 temporary-help workers.

Health-care industries added 28,000 jobs.

According to a separate survey of households, employment fell by 392,000 and unemployment rose by 466,000 to 14.9 million.

The employment participation rate was steady at 65.2%. The employment-population ratio fell to 59.2%.

The unemployment rate for teenagers rose to a record 25.5%. The jobless rate for blacks rose to 15.1%, the highest since 1986. The jobless rate for men was 10.9%, close to the post-war record of 11.2%. The jobless rate for women was 8.2%.