Unemployment rate soars, payrolls fall

US unemployment soared to 5.4 percent in October, and companies eliminated the most jobs since Jimmy Carter was president, adding to signs the economy is in recession.

The jobless rate rose to a five-year high from 4.9 percent in September, the Labor Department said. That increase was the biggest since February 1986. Payrolls fell by 415,000, the most since May 1980, when Carter was contending with a recession.

October's job loss followed a 213,000 decline in September, the biggest two-month drop since early 1975.

The terrorist attacks led to the biggest drop in service jobs since 1983. Companies including Marriott hotels owner Lodgian Inc and American Airlines parent AMR Corp. dismissed workers as travel dwindled. That added to job losses at retailers and factories, hit by the weakest consumer demand in 8 1/2 years.

"This absolutely shows the aftermath of Sept. 11," said Diane Swonk, director of economics at Bank One Corp in Chicago.

"We'll see some rebound soon, but will take four to six months before we see companies really hiring again." The jobless rate may keep rising even if growth resumes because companies tend to be slow to rebuild payrolls in a recovery, analysts said. The jobless rate rose for almost a year after the end of the 1990-to-1991 recession, climbing a full percentage point to 7.8 percent from March 1991 -- the beginning of the record 10-year expansion -- to June 1992.

"When you go through the kind of human trauma that organizations go through when they downsize, there's a very natural tendency to be very, very careful about how you add back resources," Alexander Cutler, chief executive officer of Eaton Corp, said in an interview. Eaton, based in Cleveland, is the second-largest US maker of hydraulic equipment and the biggest maker of truck transmissions.

The report signals that Federal Reserve policy makers may lower the overnight bank lending rate by as much as a half point at their meeting next week to help revive the economy. That would be the 10th reduction since January. At 2.5 percent, the rate is already the lowest in 39 years.

Policy makers "know the economic impact of their easing is coming to an end, and now they are providing psychological shelter for markets,'' said Lara Rhame, an economist at Brown Brothers Harriman & Co. in New York. ``That's still important, and they will want to give markets what they want.''

President George W. Bush, saying the attacks "have deeply affected the lives of hundreds of thousands of people," wants Congress to pass a US$75 billion economic stimulus bill that includes limited spending to help those who've lost jobs. Bush would extend unemployment benefits for 13 weeks, send US$3 billion to states in the form of block grants for health care coverage, and release an additional US$11 billion in existing federal funds for health care.

Democrats want to spend US$33 billion -- at least three times as much -- on health care and unemployment benefits for workers who lost their jobs after the attacks.

Analysts had expected a jobless rate of 5.2 percent for October and a payroll loss of 300,000, after a previously reported drop of 199,000 in September. Even so, some said the report might have shown an even bleaker jobs picture.

"This is the bad number we've all been waiting for, but the devil you know is never as scary as the devil you don't know," Rhame said. "We are going to continue to have a series of job reports which show a weakening economy, but we are not going to have anything like the shock" following Sept. 11.