The 84k decline in nonfarm payrolls in August was worse than consensus expectations, but economists say the more significant figure is the upward advance in the unemployment rate, which moved up to a five-year high at 6.1% from last month's 5.7%.

U.S. nonfarm payrolls declined for the eighth straight month in August, according to the Bureau of Labor Statistics on Friday, while revisions subtracted another 58k jobs from the previous two months.

Ian Shepherdson, chief U.S. economist at HFE, said the payrolls losses had few surprises. Manufacturing was weak, service jobs were deteriorating and constructions losses were slowing - all of which was expected. He said the real news was the rise in the unemployment rate.

"Our forecast of a 7% peak headline rate might now be too low," he added.

Shepherdson said that unlike the half-percentage point advance in May's unemployment rate, which could be attributed to students entering the labor market, August's upward movement was broader. "[T]he unemployment rate for 16-19 year-olds fell in August, while the rate for everyone else rose to 5.8% from 5.3%," he said.

Rob Carnell, chief international economist at ING Wholesale Banking, said the upward trend in unemployment will likely continue and end the year at 6.5%.

Carnell said the Fed cares about the unemployment rate "a lot" and, if the pace did move to 6.5%, "all the arguments for continuing to do nothing with rates will start to sound rather hollow." He said cutting rates from 2.00% could become "a much more obvious choice" in 2009 than it appears to markets right now.

BLS Commissioner Keith Hall said the number of unemployed persons increased by 592k to 9.4 million in August.

"Since peaking in December, payroll employment has declined by 605,000, for an average monthly job loss of 76,000," he added.

The loss in total private jobs was in the triple digits at -101k, while the goods-producing sector lost 57k, construction fell by 8k and manufacturing lost 61k jobs. The business services sector lost 53k jobs while the financial sector lost 3k jobs for the second month in a row. The only advances were in sectors outside the business cycle: government jobs and education and healthcare.

"Admittedly, we haven't yet seen the 200,000+ monthly declines in payrolls that would scream recession, but employment has now been falling for nine months in a row and the unemployment rate is rocketing," said Paul Ashworth, senior economist at Capital Economics.

Assistant chief economist Paul Ferley from RBC Capital Markets added that the decline in payrolls isn't as deep as implied by the recent surge in jobless claims, which suggested triple-digit losses. He said the downside risks to the jobs market is "sizable" and supports the Fed funds rate remaining at 2.00% in the near term.

By Patrick McGee and edited by Nancy Girgis - CEP News Ltd. 2008