Jobless rate at 4-1/2 year high

By Glenn Somerville

WASHINGTON (Reuters) - The U.S. unemployment rate unexpectedly shot up to 6.1 percent in August, the highest in over 4-1/2 years, as employers cut payrolls for an eighth straight month and a decline in labor markets accelerated.

The Labor Department said on Friday 84,000 jobs were lost in August, significantly more than the 75,000 that economists surveyed by Reuters had forecast. In addition, July's job losses were revised up to 60,000 and June's to 100,000 from a previously reported 51,000 in each month.

Analysts said the bleak hiring data showed a weakening economy that likely will oblige the Federal Reserve to keep interest rates low for an extended period.

"The economy is clearly deteriorating," said Gary Thayer, senior economist for Wachovia Securities in St. Louis. "We are also seeing weakness around the globe so there's less reason for the Fed to focus on inflation and more reason to focus on getting the economy back on its feet."

Stock indexes futures extended losses but U.S. Treasury debt prices rose as investors bet it meant interest rates will remain in hold. The dollar dipped in value against other major currencies and short-term interest rate futures began to signal that the Fed could cut interest rates by year-end.

Labor department officials said the August jobless rate was the highest since December 2003. Analysts had expected the rate to remain steady at July's 5.7 percent rate rather than to jump.

"We are running job losses that are typically seen in the early stages of an economic recession," said David Resler, chief economist for Nomura Securities in New York, adding, "we are probably in one."

There were steep cuts in hiring in nearly every major category of employment. Some 61,000 manufacturing jobs were lost in August, the most for any month since mid 2003, and 8,000 more construction jobs were cut. There were 53,000 jobs eliminated in professional and business services and 4,000 in leisure and hospitality industries.

The average hours of work remained unchanged from July at 33.7 but employers cut overtime to an average 3.7 hours per week in August from 3.8.

A few sectors added jobs. Government payrolls increased by 17,000 in August and education and health services businesses took on another 55,000 employees.

(Additional reporting by Ellen Freilich in New York, Editing by Andrea Ricci)

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