The US unemployment rate climbed to a fresh 26-year high of 9.8 per cent in September, as the pain of recession continues to linger on the shoulders of American workers in spite of aggressive measures to stimulate the economy. Official figures on Friday showed that non-farm payrolls dropped by 263,000, making it the 21st consecutive month that the US economy has shed jobs. The data were worse than even the most grim expectations, as economists predicted a 175,000 drop in payrolls, and followed a decline of a revised 201,000 jobs in August when the unemployment rate was 9.7 per cent. It is clear that the labour market is still very weak, said Paul Dales, US economist at Capital Economics. The last time one in ten members of the labour force were out of work was in 1983. The US unemployment rate has more than doubled in the past two years and the number of people without jobs has risen by 7.6m to 15.1m since the recession began in December 2007. Few industries were spared job losses last month, with construction, manufacturing, retail and government agencies culling the highest numbers of workers. Government employment fell by 53,000 as state and local budgets have been under severe pressure. Only the education and healthcare sectors added jobs in September. Brian Bethune, an economist at IHS Global Insight, noted that while targeted stimulus programmes such as cash for clunkers and the first-time home buyer tax credit have been successful at stimulating certain sectors, they have struggled so far to create stable jobs. In September, hourly earnings ticked up by a penny to $18.67, but the average work week, a closely watched measure that signals future hiring, slid back to 33 hours. This remains close to a record low and economists suggest that an expansion in working hours will have to come before new hiring begins. Hourly earnings are soft, reinforcing a view that the short term problem is disinflation not inflation, and does not support a consumer spending rebound, said Alan Ruskin, a strategist at RBS Greenwich Capital. The labour department figures come as analysts project that the US economy grew at an adjusted annual rate of 3 per cent in the just completed third quarter. Fears abound, however, over a jobless recovery, where companies that have become acclimated to operating with fewer workers are slow to begin rehiring and where employment lags the rest of the economy. Ben Bernanke, chairman of the Federal Reserve, said on Thursday that even if the economy expands at a rate of 3 per cent, that will not be enough to chip away at the unemployment rate, which is expected to rise above 10 per cent before falling back next year. Mr Bernanke has pointed to rising levels of long-term unemployment of six months or more as another looming risk to the labour force, as workers begin to see their skills erode. In September, 5.4m Americans had been unemployed for more than six months, representing 35.6 per cent of those who were unemployed. If people arent looking for ways to keep their skills fresh while they are unemployed, thats a problem, said Tig Gilliam, chief executive of Adecco Group North America, a staffing agency. Other indicators have added to the argument that unemployment will remain stubbornly high. New jobless claims have been mounting at a clip of around 500,000 a week, the rebound in manufacturing activity appears to be sputtering and the latest Conference Board survey found that more people feel like jobs are hard to get. When the labour market does begin to rebound, the recovery will likely be uneven, as several US states are experiencing more employment pain than others. According to the labour department, unemployment rates in 14 states have already breached the 10 per cent mark. (FT)