US jobless rate rises to highest level since 1994

The US unemployment rate rose to its highest level since 1994 in October, official data showed Friday, with analysts forecasting it to increase further in Barack Obama's first year as president.

The Labor Department said the jobless rate rose to 6.5 percent as the world's largest economy shed 240,000 jobs during the month amid the credit squeeze and downturn.

"Employment has fallen by 1.2 million in the first 10 months. Over half of the decrease has occurred in the last three months," the department said in a statement.

The figures underlined the challenge for incoming US president Obama, who was to meet Friday with his economic team before giving his first post-election news conference.

Analysts forecast that the jobless rate would climb above 7.0 percent next year after Obama's inauguration in January, with the peak seen about 7.5 percent in the middle to end of the year.

The US economy has shed jobs for 10 straight months in 2008 and the Labor Department revised losses in August and September sharply higher to 127,000 and 284,000 rather than the 73,000 and 159,000 estimated a month ago.

"(Job) losses should remain heavy for several more months," said economist Stephen Gallagher at investment bank Societe Generale in New York.

"The rate should rise to 7.5 percent by mid 2009."

The data confirmed the severity of the economic downturn underway in the United States where months of turmoil on stock markets, tightening of credit and record-low consumer confidence have taken their toll.

"Most recent macroeconomic figures show a rapid pace of deterioration suggesting a deepening recession," said economist Amine Tazi at investment bank Natixis, pointing to other indicators of activity.

Given the turmoil, all eyes are on Obama's nomination for Treasury secretary, with Timothy Geithner, 47, president of the Federal Reserve Bank of New York, in lead position.

He has acted as an intermediary between the US Federal Reserve and the financial markets and played a key role in formulating measures to protect banks from the crisis.

Others include former treasury secretary Larry Summers, ex-Federal Reserve chief Paul Volcker and Laura Tyson, chairwoman of the National Economic Council under president Bill Clinton.

"The unemployment rate is likely to breach the 7.0 percent mark early next year," said Ian Shepherdson, an analyst at High Frequency Economics.

"It has already broken above the June '03 peak and the trend is rising almost vertically. Wages depressed too, up only 0.2 percent.

Commenting on the the Labor Department report, he called it "horrible in every way."

US stocks rose in early trading on Friday despite the gloom, bouncing back after a two-day rout.

The Dow Jones Industrial Average leapt 97.17 points or 1.12 percent to 1,628.37 in opening trade.

The White House on Friday said that the sharp rise in unemployment highlighted the importance of a government response, but indicated no new powers were needed.

"Today's employment numbers are a stark reminder of how critical it is we keep focused on utilizing the tools we now have to return our country to the strong job creation we had in recent years," said spokeswoman Dana Perino.

"The programs we're putting in place will improve the flow of credit to consumers and businesses that will spur economic growth, job creation, and stabilization of our financial markets," she said.

Perino was referring to a federal rescue package of up to 700 billion dollars that the administration has started to tap to help troubled US firms -- while rejecting calls for a new economic stimulus package.

Momentum for a tax and spending plan to boost the economy is growing following the election of Obama, who expressed support for a stimulus package during the campaign.

House of Representatives Speaker Nancy Pelosi said in an interview published in The Wall Street Journal on Friday that a new stimulus package should come in two parts.

Pelosi called for the two-stage effort to involve a 60-100 billion dollar stimulus package in November before the end of President George W. Bush's term.