WASHINGTON - The unemployment rate rose to 9.8 percent in September, the highest since June 1983, as employers cut far more jobs than expected.
The report shows that the worst recession since the 1930s is still inflicting widespread pain and underscores one of the biggest threats to the nascent economic recovery: that consumers, worried about job losses and stagnant wages, will restrain spending. Consumer spending accounts for about 70 percent of the nation's economy.
Most analysts expect the economy to continue to improve, but at a slow, uneven pace. Government stimulus efforts, such as the Cash for Clunkers auto rebates, likely boosted the economy in the July-September quarter, but economists worry that growth will slow once the impact of such programs fades.
"Consumers ... are going to struggle to increase their income," said Brian Fabbri, North American chief economist for BNP Paribas. "If they're struggling, they're not consuming. That just takes some of the legs out of recovery."
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The Labor Department said Friday that the economy lost a net total of 263,000 jobs last month, from a downwardly revised 201,000 in August. That's worse than Wall Street economists' expectations of 180,000 job losses, according to a survey by Thomson Reuters.
The unemployment rate rose from 9.7 percent in August, matching expectations.
If laid-off workers who have settled for part-time work or have given up looking for new jobs are included, the unemployment rate rose to 17 percent, the highest on records dating from 1994.
All told, 15.1 million Americans are now out of work, the department said. And more than 7.2 million jobs have been eliminated since the recession began in December 2007.
Nearly a half-million of the unemployed dropped out of the work force last month, the department said, presumably out of frustration over the lack of jobs. That sent the participation rate, or the percentage of the population either working or looking for work, to a 23-year low.
The unemployment rate would have topped 10 percent if the labor force hadn't shrank, Fabbri said.
Older, laid-off workers are dropping out and requesting Social Security at a faster-than-expected pace, according to government officials. The Social Security Administration said earlier this week that applications for retirement benefits are 23 percent higher than last year, while disability claims have risen by about 20 percent.
Meanwhile, the number of people out of work for six months or longer jumped to a record 5.4 million, and they now make up almost 36 percent of the unemployed - also a record.
Federal Reserve Chairman Ben Bernanke said Thursday that even if the economy were to grow at a 3 percent pace in the coming quarters, it would not be enough to quickly drive down the unemployment rate. Bernanke said the rate is likely to remain above 9 percent through the end of 2010.
Besides the sagging jobs market, other potential obstacles to a smooth recovery include wary consumers, the troubled commercial real estate market, and a tight lending environment for individuals and businesses, said Eric Rosengren, president of the Federal Reserve Bank of Boston.
"These challenges will likely make the recovery rather restrained by historical standards, with subdued levels of spending and lending continuing to hold back a more rapid recovery," Rosengren said in a speech in Boston on Friday.