By Jeannine Aversa
Associated Press Writer
Friday, Nov. 2, 2001; 1:36 p.m. EST

WASHINGTON –– The nation's unemployment rate soared to 5.4 percent in October, the biggest one-month jump in more than 21 years, providing the most dramatic evidence yet that economic fallout from the terror attacks probably pushed the country into recession. Over 400,000 jobs were eliminated during the month.

"It's not good news for America," President Bush said, urging the Senate to quickly pass an economic revival package. After meeting with economic advisers, Bush said the Sept. 11 terrorist attacks had not only taken thousands of lives but had also "threatened the livelihoods of thousands of American workers."

Widespread job losses catapulted the unemployment rate from 4.9 percent in September to 5.4 percent last month, marking the highest unemployment rate the country has seen since December 1996, the Labor Department reported Friday.

On Wall Street, the weak jobs report initially pushed stocks lower as investors worried that an economic rebound might take longer than previously thought. But the Dow Jones industrial average recovered some ground later, with the index gaining 60 points in afternoon trading.

The 415,000 jobs eliminated during the month represented the biggest cut in payrolls since May 1980. Factories, airlines, travel agencies, hotels and retailers were among those posting big losses.

The 0.5 percentage-point advance in October's unemployment rate matched a similar half-point increase in February 1986 and was the largest since a 0.6 percentage-point surge in May 1980.

"Companies are in survival mode and they are cutting jobs to control costs," said economist Ken Mayland of ClearView Economics. "The tragic events of Sept. 11 and their aftermath probably tipped the economy into recession. People are waiting for the other shoe to drop."

Damage from the attacks could be seen in another report Friday. Orders to American factories tumbled by 5.8 percent in September to $313.1 billion, the lowest level since March 1997, the Commerce Department said.

Transportation equipment, including cars, took the biggest hit with orders plunging by 15.8 percent in September. Orders for computers, industrial machinery and household appliances also fell.

Economists fear that continued fallout from the attacks, new worries about anthrax in the mail, plunging consumer confidence and rising unemployment in the months ahead, will keep consumers tightfisted, further weakening the economy.

The economy shrank at a rate of 0.4 percent in the July-September quarter and economists are forecasting an even bigger drop in the current October-December quarter. A common definition of a recession is two consecutive quarters of declining economic output.

To revive the economy, the Federal Reserve has cut interest rates nine times this year, with two reductions coming after the Sept. 11 attacks. Most economists predict another rate cut at the Fed's next meeting on Nov. 6. Some economists believe Friday's report significantly raised the odds of a bold half-point rate reduction, rather than a more conservative quarter-point cut.

On Capitol Hill, the new jobless figures sharpened the already intense debate between Republicans and Democrats on how best to stimulate the economy and what the right mix of tax cuts and increased government spending should be.

Economists are hopeful the Fed's credit easing and the expected adoption of a stimulus package would prevent any downturn from being drawn out and would set the stage for a rebound next year.

The latest snapshot of economic activity painted a more grim picture of the nation's labor market than many analysts were expecting. They were forecasting a rise in the jobless rate to 5.1 percent and a loss of around 280,000 jobs during the month. For the third month in a row, total payrolls declined. The loss of 415,000 jobs in October had been preceded by cuts of 213,000 in September and 54,000 in August.

Total employment – private companies and government – has fallen by nearly 900,000 since March. Over the same period, employment in the private sector alone dropped by an even bigger 1.2 million.

Manufacturing has been hardest hit by the economic slump and has been enduring a recession of its own for months. The sector continued to post heavy job losses. In October, another 142,000 jobs were cut, bringing total job losses since March to more than 800,000.

To cope with sagging sales, manufacturers have sharply cut back production and shed workers.

In the airline industry, employment fell by 42,000 and in the travel sector 11,000 jobs were cut in October. The government said these job losses reflected fallout from the attacks.

In the service sector, normally the engine of job growth in the country, employment dropped by 111,000 in October, the fourth and largest decline this year for the industry. Particularly large job losses occurred at hotels and temporary help firms.

Retailers lost 81,000 jobs in October, the second large job loss in a row.

Construction companies cut 30,000 jobs in October as builders showed more caution in the wake of the attacks.

The jobs report caps a week of dismal economic news. On Tuesday, a report showed consumer confidence plunged to a 7 1/2 year low. A day later, the government said the economy contracted in the third quarter.

On Thursday, the government reported consumers cut back on their spending in September by the largest amount in nearly 15 years. The National Association of Purchasing Management on the same day said manufacturing activity had sank to its lowest level since February 1991, when the country was mired in its last recession.