WASHINGTON – The unemployment rate continued to climb in December, reaching a six-year high of 5.8 percent, but the data showed the pace of layoffs following the Sept. 11 attacks slowed slightly.
The Labor Department's latest unemployment report fueled optimism that the economy is coming out of recession.
"You don't want to characterize this as a strong report by any means but it does indicate that things are starting to improve," said Ed McKelvey, economist at Goldman Sachs in New York.
Economists said the report makes it more likely that the Fed's interest-rate cutting campaign, which brought down overnight rates by 4.75 percentage points to 1.75 percent in 2001, could be over for this economic cycle.
With short-term rates already at 40-year lows, some analysts said the Fed could sit tight for a while.
The unemployment data also fueled political debate.
The Bush administration tried to increase pressure on Senate Democrats to take up the president's economic stimulus program — now called the "economic security" package — when Congress returns this month.
Democrats argue the package needs to offer fewer tax cuts for the wealthy and more help for thousands of unemployed people. Republicans counter that the tax cuts are needed to spur job creation.
"The most important thing that we can do for dislocated workers is to help them find a new job," said Labor Secretary Elaine Chao. "The best thing that we can do for them is not to help them remain on unemployment insurance."
Senate Democratic leader Tom Daschle said that a year ago the nation could have made "virtually any urgent investment we needed. We do not have that flexibility and those resources today, because Republicans chose ideology over experience."
The unemployment report showed that businesses cut 1.08 million jobs from their payrolls in 2001 — the largest, single-year loss since 1982 when 2.16 million were cut as the country struggled through the steepest downturn since the Great Depression.
Last year's was the first annual job loss since businesses trimmed 844,000 jobs in 1991, during the last recession.
The 10-year-long economic expansion that followed — the longest stretch in U.S. history — pushed the jobless rate down to a 30-year low of 3.9 percent in October 2000.
In 2001, the employment level peaked in March, the month that the National Bureau of Economic Research has ruled that the recession began. Since then, businesses have cut 1.4 million jobs, with 1.1 million of those coming in the last four months of the year as the slumping economy received a body blow from the terrorist attacks.
The job market will be one of the last signs of recovery if, as analysts project, the nation emerges from recession sometime this year, probably by spring. Even after the recovery begins, the unemployment rate is expected to continue rising until businesses gain enough confidence to begin hiring back workers.
"We expect the recovery to be slow and sluggish, not rapid and robust," said Donald Straszheim of Straszheim Global Advisors.
Many economists predict the jobless rate will top out at around 6.5 percent by June or July, plateau for a while, and start going down in the fall or winter.
One aspect of the employment report that economists found particularly encouraging was a small lengthening in the workweek. Despite the drop in payrolls, the workweek for private workers grew to 34.2 hours from 34.1 in November.
"That is often the first indicator that things are going to get better," McKelvey said. He said the number suggested companies were scheduling longer days — and in some cases overtime — for existing workers, presumably to meet a pickup in demand for goods and services.
Often during downturns, firms will increase workers' hours before they commit to hiring new people.
December's loss of 124,000 jobs reflected continued declines in manufacturing, retail, air transportation and temporary employment services. But the hemorrhaging slowed, offset by growth in services and government. Job losses had averaged about 400,000 a month in October and November.
Last year was a particularly bad year for manufacturing, which shed 1.3 million jobs — or about 7 percent of its work force.
December declines also were heavy in retail with 77,000 job cuts, particularly at general merchandise stores and retailers such as toy stores and jewelry stores, both of which fell short of their typical holiday hiring.
Analysts have said that the holiday spending season was lackluster and shopping malls probably responded to that by keeping staffing levels lean.
Those declines were tempered slightly by job gains at auto dealerships as free financing enticed customers. Retail had added 200,000 jobs by July, but losses since then have left employment down by 73,000 for 2001.
Air transportation, weakened by the terrorist attacks, lost 26,000 jobs in December. There also were sizable losses in communications and public utilities.
But service employment grew by 72,000, led by hospitals, home health care and private education. In government, job gains totaled 63,000.
Temporary employment firms continued to lay off workers, cutting 55,000 positions in December. The industry has shed 688,000 jobs since September 2000, or 19 percent of its total.
One anomaly in the employment report was a jump in average hourly earnings. The earnings of nonsupervisory workers surged 0.5 percent in December to $14.61 per hour after a matching revised 0.5 percent gain in November. The November increase was previously reported as 0.3 percent.
Hourly earnings had been expected to rise only 0.2 percent in December.
Some economists said the jump in earnings may reflect a change in the composition of the work force. When companies cut staff, they tend to trim the newer, lower-paid workers first while retaining more experienced people.
A larger proportion of high-earning workers on the payrolls could push up average earnings.
Reuters and the Associated Press contributed to this report.