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BLBG: U.S. Payrolls Fell 159,000 in September; Jobless Rate at 6.1%
By Shobhana Chandra

Oct. 3 (Bloomberg) -- The U.S. lost the most jobs in five years in September and earnings rose less than forecast as the credit crisis deepened the economic slowdown.

Payrolls fell by 159,000, more than anticipated, after a 73,000 decline in August, the Labor Department said today in Washington. The jobless rate, the last one reported before the presidential election, remained at 6.1 percent. Hours worked reached the lowest level since records began in 1964.

The world's largest economy may be headed for bigger job losses as the worst financial meltdown since the Great Depression causes consumers and companies to retrench. A sinking labor market and rising borrowing costs raise the odds Federal Reserve policy makers will cut interest rates by their Oct. 29 meeting.

``The financial panic is a body blow to business confidence, and companies are now battening down the hatches,'' Mark Zandi, chief economist at Moody's Economy.com in West Chester, Pennsylvania, said before the report. ``We're in store for very sizable job losses across many industries. A rate cut by the Fed could come before the next meeting.''

Revisions added 4,000 to payroll figures previously reported for August and July. The Labor Department said it was ``unlikely'' that Hurricane Ike, which struck the Gulf Coast last month, ``had substantial effects'' on payrolls figures.

After today, the total decline in payrolls so far this year has reached 760,000. The economy created 1.1 million jobs in 2007.

Economists' Forecasts

Payrolls were forecast to drop 105,000 after declining by a previously estimated 84,000 in August, according to the median of 76 economists surveyed by Bloomberg News. Estimates ranged from declines of 156,000 to 60,000. The jobless rate was projected to remain at 6.1 percent.

The misery index, which adds the unemployment and inflation rates, surged to 11.7 percent in August, the highest level since 1991.

The jobless rate is up 1.4 percentage points from September 2007. Since World War II, the rate has risen only twice during similar periods before presidential elections. In both cases -- when Bill Clinton defeated George H. W. Bush in 1992 and when Ronald Reagan beat Jimmy Carter in 1980 -- the incumbent party lost the election.

Americans will go to the polls on Nov. 4 and the October jobs report is due Nov. 7.

``Voters are extremely angry, and they want someone to blame,'' said Scott Anderson, senior economist at Wells Fargo & Co. in Minneapolis.

Presidential Race

Democratic presidential nominee Barack Obama has opened up a lead over Republican rival John McCain in the aftermath of their first debate and amid growing concerns about the economy, according to a Pew Research Center survey taken Sept. 27 to Sept. 29. A mid-September poll from Washington-based Pew had shown the candidates were in a statistical dead heat.

Earlier in September, a Bloomberg/Los Angeles Times poll showed more respondents said Obama would do a better job handling the financial crisis than McCain, and almost half of the voters believed he had better ideas to strengthen the economy than his rival.

Factory payrolls fell 51,000 after decreasing 56,000 in August. Economists had forecast a drop of 57,000.

Today's report also reflected the housing slump. Payrolls at builders declined 35,000 after falling 13,000. Financial firms decreased payrolls by 17,000, the most since November last year.

Pain at Retailers

Service industries, which include banks, insurance companies, restaurants and retailers, subtracted 82,000 workers after eliminating 16,000 in the previous month. Retail payrolls slid by 40,100 after a 25,400 drop.

Government payrolls increased by 9,000, the smallest gain since January.

In the past month, Hewlett-Packard Co., the world's largest personal-computer maker, announced it will cut 24,600 jobs, and auto-parts maker Federal-Mogul Corp. said it would eliminate 4,000 positions globally.

The Senate passed a $700 billion financial-market rescue package earlier this week and the House of Representatives may vote on it today.

Marriott International Inc., the world's largest hotel chain, yesterday reported third-quarter profit fell 28 percent as U.S. companies and consumers cut back on travel.

``Without action, the resulting credit squeeze could threaten businesses,'' Chief Financial Officer Arne Sorenson said on a conference call. There are ``tens of thousands of jobs at stake in our company alone, and we are typical.''

Spending to Slow

Mounting job cuts will further limit consumer spending, which accounts for more than two-thirds of the economy. A Bloomberg survey in September predicted spending will be unchanged this quarter, the weakest performance since 1991.

The Institute for Supply Management's index on Oct. 1 showed manufacturing shrank in September at the fastest pace since the last recession in 2001. The odds the central bank will lower its benchmark rate by a half percentage point, to 1.5 percent, later this month rose to 34 percent that day, compared with no chance a week earlier.

The probability jumped to over 90 percent yesterday as stocks tumbled and borrowing costs surged.

The average work week shrank to 33.6 hours from 33.7 hours, today's report showed. Average weekly hours worked by production workers slipped to 40.7 hours from 40.9 hours, while overtime dropped to 3.6 hours from 3.7 hours. That brought the average weekly earnings down by 81 cents to $610.51 in September.

Workers' average hourly wages rose 3 cents, or 0.2 percent, to $18.17 from the prior month. Hourly earnings were 3.4 percent higher than September 2007. Economists surveyed by Bloomberg had forecast a 0.3 percent increase from August and a 3.6 percent gain for the 12-month period.

The payrolls report included the government's preliminary estimate for annual benchmark revisions. The Labor Department said payrolls for the 12 months ended in March 2008 will probably be revised down by 21,000.

Currently, government figures show 521,000 jobs were created during the 12 months to March. The final estimate will be issued in February.

To contact the reporter on this story: Shobhana Chandra in Washington schandra1@bloomberg.net