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Economy Loses 93,000 Jobs

unemployment graphic
AP / CBS
You can see the signs of an economic recovery at Visual Graphic Systems in New York. Milton DiPietro's business is making signs for restaurants, office buildings, even train stations.

He told CBS News Correspondent Anthony Mason that business started to turn around in February. He says his sales are up 15 percent this year.

Asked if he was confident the recovery is for real, DiPietro replied, "I think it is. For our business is it."

But for job seekers, it isn't.

The U.S. economy lost payroll jobs in August for the seventh month in a row even as the unemployment rate dipped to 6.1 percent, the Labor Department reported Friday.

Non-farm payrolls shrank by 93,000, bringing the total job losses to 595,000 since January. The decrease in payrolls was the largest since March.

Economists had expected a small gain in payrolls of about 19,000 and had forecast that the jobless rate would hold steady at 6.2 percent.

Manufacturing firms cut 44,000 jobs, government axed 26,000 and professional services eliminated 28,000 jobs. Health services added 25,000 jobs, construction added 19,000 and temporary help services added 7,000 jobs.

The economy needs to create about 150,000 jobs a month just to absorb the population growth.

Prior to the announcement, Bill Dudley, chief economist at Goldman Sachs, said: "Significant improvement in the labor market remains elusive. The labor market is still anemic."

Sung Won Sohn, chief economist at Wells Fargo, said the latest employment report no longer reflected a cyclical economy trying to add jobs after a recession "which is depressing."

Deeper concerns now are focused on long-term structural problems in the economy, such as a flood of U.S. jobs going overseas. "We have simply seen the tip of the iceberg," Sohn said. "I think it will get worse, not better."

Some reports estimate 5 million jobs - many high-paying - will be lost to other countries by 2015. The economy is growing, but demand is being filled from overseas, Sohn said. Also, because of that increasing global competition, businesses are holding down costs by not hiring.

That could spell problems for President Bush's re-election next year, with polls showing the economy as the top concern for likely voters, replacing terrorism and Iraq.

The employment report showed that the average workweek held steady at a record low 33.6 hours, with the manufacturing workweek steady at 40.1 hours. The total number of hours worked in the economy fell by 0.1 percent.

Average hourly wages rose by 2 cents or 0.1 percent to $15.45 an hour. Weekly wages rose 0.1 percent to $519.12.

The number of unemployed Americans fell to 8.9 million from 9.06 million. About a fifth of the unemployed have been out of work longer than six months. About a quarter million dropped out of the labor market in August. The jobless rate is based on the ratio of those seeking work to those in the labor pool. A smaller pool reduces the unemployment rate.

The employment report is based on two separate surveys. First, the government surveys 400,000 establishments to determine the level of payrolls, hours and wages. The agency also surveys about 60,000 households to determine the size of the labor pool, the unemployment rate and reasons for unemployment.

In the past several years, the two surveys have diverged, with the household survey showing overall job growth even as the establishment survey reported more than 2.5 million jobs lost. In August, for instance, the household survey showed employment rose by 147,000.

While some economists suggest that the household survey provides a better view of the economy during turning points, Kathleen Utgoff, commissioner of the Bureau of Labor Statistics, said the payroll survey "provides more reliable information" because the sample is larger.

Even though the economy has strengthened, firms still aren't hiring. With strong productivity growth in the U.S. economy and a greater reliance on imports than ever before, companies haven't needed to hire any additional American workers to meet demand from U.S. buyers.

"We're losing jobs pretty much everywhere, except for health services and construction," said Bill Cheney, chief economist with John Hancock.

And with mortgage rates rising again, construction jobs could start to fall. Champion, the Michigan based homebuilder said Friday it's laying off one thousand workers -- thirteen percent of its workforce.

And many companies that are growing are doing it by getting more out of their workers - not hiring more of them.

"It's probably good for corporate bottom lines and profits in the short run, but it's really bad for job seekers and it's bad for the economy overall, if it persists," Cheney said.

Job growth could be the most important issue over the next year for the Federal Reserve, the White House and the electorate.

Few economists expect a dramatic improvement in the unemployment rate before the election. The consensus forecast sees the jobless rate slowly falling from 6.2 percent in July to 5.8 percent in December 2004.

Knowing that the voters retired his father because of their impatience with the jobless recovery in 1992, President Bush urged Congress on Thursday to act quickly to help the private sector create jobs.

"I'm interested in Americans going to work," Mr. Bush said as he encouraged lawmakers to reduce health-care and litigation costs that impose barriers to hiring. He also called for action on energy, trade and taxes to boost the economy.

Democrats seeking to succeed Mr. Bush in the White House have said the administration's job growth record is the worst since Herbert Hoover's.
Since Mr. Bush took office, payrolls have shrunk by 2.56 million workers. It's the first time since the Great Depression that the economy failed to add jobs at this point in a recovery.

For the Fed, the decision about the course of interest rates could hinge on how fast some 9 million unemployed Americans are put back to work.

The Federal Open Market Committee would likely keep interest rates very low even during a robust economic recovery as long as unemployment remained high, influential Fed Governor Ben Bernanke said Thursday.

"Ongoing productivity growth, together with stepped-up capital investment, may enable producers to meet expanding demand without substantially increased hiring in the near future, with the result that labor markets remain soft," Bernanke said.

If the expected growth doesn't create more jobs, "monetary ease" (meaning rate cuts) may be required, Bernanke said.