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Longer-term jobless benefits hit 25-year high

(Agencies)
Updated: 2008-11-07 00:57

On Wall Street, stocks slumped. The Dow Jones industrials were down about 90 points in morning trading.

Hoping to prevent a deep recession, the Federal Reserve last week ratcheted down interest rates last week to 1 percent and left the door open to further reductions.

The country's economic state has rapidly deteriorated in just a few months. The economy contracted at a 0.3 percent pace in the July-September quarter, signaling the onset of a likely recession. It was the worst showing since the last recession, in 2001, and reflected a massive pull back by consumers.

With the economy sinking and consumers appetites flagging, employers have been slashing jobs. They are expected to cut around 200,000 jobs when the government releases the October employment report on Friday. The unemployment rate -- now at 6.1 percent -- is expected to climb to 6.3 percent in October.

As American consumers watch jobs disappear and their wealth shrink, they'll probably retrench even further.

That's why analysts predict the economy is still shrinking in the current October-December quarter and will continue to contract during the first quarter of next year. All that more than fulfills a classic definition of a recession: two straight quarters of contracting economic activity.

Yet another report out Thursday showed the efficiency of US workers slowed sharply in the summer as overall production, or output, declined, reflecting the hit to consumers from housing, credit and financial troubles.

Productivity -- the amount an employee produces for every hour on the job -- grew at an annual pace of 1.1 percent in the July-September quarter, down from a 3.6 percent growth rate in the second quarter, the Labor Department reported.

With productivity growth slowing, labor costs picked up. Unit labor costs -- a measure of how much companies pay workers for every unit of output they produce -- increased at a 3.6 percent pace in the third quarter, compared with a 0.1 percent rate of decline in the prior period.

The 1.1 percent productivity growth logged in the summer beat economists' expectations for a 0.8 percent growth rate. The pickup in labor costs -- while welcome to workers -- was faster than the 2.8 percent pace economists were forecasting.

Economists often look at labor compensation for clues about inflation. These days, however, the Federal Reserve and analysts are more concerned about the economy's feeble state. While the pick up in labor costs might raise some economists' eyebrows, the Fed is predicting inflation pressures will lessen as the economy loses traction.

The 1.1 percent productivity gain was the smallest since the final quarter of last year, while the increase in labor costs was the biggest since that time.

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