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Rise in US Unemployment Signals Recession


The U.S. unemployment rate rose much higher than had been expected in October. Economists view the data as evidence that the long-expanding U.S. economy slipped into recession during the third quarter of this year.

Analysts had expected the jobless rate to rise modestly to 5.2 percent. Instead the unemployment rate soared one-half of one percent from 4.9 percent to 5.4 percent.

[The Labor Department says] 415,000 jobs were lost in October in an economy that routinely had been creating, not losing jobs. The job losses were much higher than expected. Airlines cut 42,000 jobs and the long depressed industrial sector lost 142,000 jobs.

The monthly job losses were the highest since the 1980 economic downturn. Analysts interpret the data as evidence that, after more than ten years of continuous expansion, the economy is again in recession.

Robert Hormats, chief economist at Goldman Sachs in New York, says the government should use tax and spending policy to stimulate the economy. "I think it is important that Washington act. And I think the stimulus should be forward-looking and provide incentives to consumption, if we need to - for instance Senator Olympia Snow has a proposal for rebates to states of sales taxes, which I think would be positive," says Mr. Hormats. "Investment tax credits, immediate expensing, all those things would be very useful to create both demand among households, which is weakening and to provide to the degree we can incentives for new investment."

Mr. Hormats spoke on CNBC television.

The jobless figures are the latest in a series of gloomy economic reports. Earlier, the government reported that the U.S. economy shrank at an annual rate of four-tenths of one percent in the July to September quarter.

In the aftermath of the terrorist attacks, consumer confidence fell precipitously. Business investment is down, as are forecasts of future economic activity. About the only positive recent news is that auto sales, boosted by price and interest rate discounts, are at a record high.

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