The labor market has replaced housing as the dark cloud on the economic horizon, Freddie Mac economists said, but there are hopeful signs even as the jobless rate continues to rise. Unemployment in August jumped to 9.7 percent, the highest in more than 26 years, as the economy shed jobsfor the 20th month in a row and nonfarm payrolls fell by 216,000, the housing lender said in its September Economic Outlook. Labor market conditions typically lag in a recovery, the report noted, as businesses wait to make sure a recovery is under way and increase output as needed by boosting hours for existing workers. Also, it often takes weeks or even months to recruit, interview and hire new staff. The August job loss, in any case, was the smallest in a year, and less than a third the pace in early 2009, the report said. Average hourly earnings were up 0.3 percent,

helping to give households some much-needed spending power. “These steps, though small, are a move in the right direction,” the Freddie Mac economists said. Meanwhile, some positive housing news — increases in sales of new and existing homes over successive months, and favorable reports on home prices during the second quarter — provides further evidence that housing markets are stabilizing, the report said, and that the sector is less of a drag on the economy. The economy is getting further support as financial markets return to normal. Some key risk measures, such as the 3-month Treasury-to-LIBOR spread, have returned to pre-crisis levels. Corporate debt issuance was up 59 percent in the first half of the year from the year-ago period, to $917 billion. That quadruples the $226 billion issued during the depths of the crisis in the second half of last year. Fixed-rate mortgage rates declined to three-month lows, and were slightly more than a quarter-point higher in early September than the record lows in the spring. Jumbo mortgages, however, still are only available at a considerable spread over rates on conforming mortgages (nearly one percentage point on fixed rate loans). Further support for the economy will come from the economic stimulus package, the bulk of which will be felt later this year and in 2010, and from an economic rebound in major trading partners in Europe and elsewhere, the Freddie Mac report said.