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Unemployment Rate Rises To 9.8 Percent; U.S. Economy Shed 263,000 Jobs In September

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WASHINGTON — Job hunters will face long odds well into next year. As the unemployment rate inches closer to 10 percent, most businesses are nowhere close to hiring again.

Uncertain about prospects for recovery – the economy's and their own – employers cut 263,000 jobs in September, the government said Friday. Unemployment crept up to 9.8 percent.

As the economy slowly turns around, sales are slowly growing and many companies are starting to make money again. But they're doing it by cutting costs, squeezing more work out of fewer employees and relying on part-timers and cheap overseas labor.

Until companies are confident the recovery is here to stay, they will probably keep laying off workers. The economy lost 62,000 more jobs in September than in August, and the unemployment rate notched up from 9.7 percent to a new 26-year high.

Most economists say the recession is probably over. But the recovery isn't robust enough to embolden businesses to hire again.

"Fear is a large factor for many companies," said Michael Williams, dean of the graduate school of business at Touro College in New York. "What happens after the government's stimuli end? Does the recovery morph into something durable, or is there an abyss on the other side?"

President Barack Obama called the jobless figures a sobering reminder that progress to reverse the recession will come in fits and starts.

Employers are expected to continue cutting payrolls for six to nine more months. Economists think the jobless rate will go as high as 10.5 percent around the middle of next year before declining gradually.

It could take three or four more years for unemployment to fall to normal levels. The worst recession since the Great Depression has already claimed 7.2 million jobs, and analysts figure 750,000 more jobs could disappear over the next six months.

The drumbeat of job losses is creating fear that Americans won't start spending again and the recovery may fizzle. Some worry the economy might succumb to a "double dip" recession – meaning it would stop growing and start shrinking again.

"This recovery looks like roadkill," said Christopher Rupkey, economist at Bank of Tokyo-Mitsubishi. "The heavy layoffs have stopped, but there are simply no new jobs available, and the harder the jobs are to get, the harder and longer this road to recovery is going to be."

After the recession of 1981 and 1982, the economy added 1.2 million jobs in the first six months of recovery. By contrast, after the 2001 recession, the economy lost 1.1 million jobs before unemployment peaked two years later. It was dubbed a jobless recovery.

Economic historian John Steel Gordon says this could be a jobless recovery, too, with businesses wringing more work out of the employees they still have and relying on part-time and overseas help.

"It's actually worse now," he said. "Companies aren't going to hire until it becomes obvious we're back in a lasting growth cycle."

Until then, economists think, the few industries creating jobs will probably include health care, education, legal services, data processing and transportation. And early next year, the federal government will be hiring for the 2010 census.

In the last economic recovery, the financial industry drove job growth, but that probably won't happen this time. Job growth should also be slow in construction, manufacturing and retail.

All told, 15.1 million Americans are out of work – twice as many as at the start of the recession. Counting laid-off workers who have settled for part-time work or just given up, the unemployment rate is 17 percent, the highest on record since 1994.

People are also staying out of work longer. The number of people jobless for six months or longer jumped to a record 5.4 million. That's more than one-third of the unemployed, a record.

A key Obama adviser noted that while the job losses in September were the most since July, layoffs are way down from a recession high of 741,000 in January.

"We still think the overall trend is moving in the right direction," said Christina Romer, chair of the President's Council of Economic Advisers. "We're going from much larger job losses earlier this year. We want them to moderate more."

Alan Krueger, chief economist at the Treasury Department, would not rule out seeking another a second economic stimulus package – a decision he said could be made later. Republicans say the first package, $787 billion worth, isn't helping stanch job losses.

"Wasteful government spending is not the solution to what ails this economy," said Indiana Rep. Mike Pence, chairman of the House Republican caucus.

A House bill to add 13 weeks of unemployment benefits for people in states where the jobless rate is 8.5 percent of higher has stalled in the Senate. Hundreds of thousands of people already have exhausted their benefits or are about to.

The September unemployment rate would have been higher – perhaps over 10 percent – if not for the exodus of 571,000 people from the work force, economists said. Many of them were so frustrated over a lack of work that they simply abandoned the search.

Older workers who are laid off are also dropping out and filing for Social Security benefits at a faster-than-expected pace, the government says. Applications for retirement benefits are 23 percent higher than last year. Disability claims are up about 20 percent.

Bernard Baumohl, chief global economist at the Economic Outlook Group, says he's optimistic the recovery won't fizzle. But he says it will "jagged and uneven," with more pain ahead for jobseekers.

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AP Economics Writer Martin Crutsinger and Associated Press Writer Mark S. Smith contributed to this report.