Glenn Somerville, Reuters, March 7, 2008
WASHINGTON (Reuters) - Employers unexpectedly cut jobs in February at the steepest rate in nearly five years, a second straight month of employment losses that heightened fears the world's largest economy has skidded into recession.
"The question appears no longer to be are we going into a recession but how long and deep it will be," said economist Joel Naroff of Naroff Economic Advisors Inc in Holland, Pennsylvania.
The Labor Department on Friday said 63,000 non-farm jobs were eliminated on top of an upwardly revised loss of 22,000 in January, sharply contrary to Wall Street economists' forecasts that 25,000 positions would be added in February.
The department also halved the number added in December to 41,000 from the 82,000 estimated a month ago, in a move that underlined the steady deterioration in the U.S. labor market.
"The underlying trends are horrible, with worse to come," said economist Ian Shepherdson of High Frequency Economics in Valhalla, New York. The Federal Reserve "has to ease (U.S. benchmark interest rates) much more," he said.
The U.S. central bank already has cut its federal funds target rate by 2.25 percentage points since September to its current 3 percent level and is widely expected to slash it again at its next policy-setting session on March 18.
A Reuters poll on Friday found that most major Wall Street dealers expect the fed funds rate to be at 2 percent and possibly lower by the end of April.
STOCK PRICES SUFFER
Stock prices dropped on the unfavorable jobs report, with the Dow Jones industrial average (.DJI) down 146.70 points at the close to 11,893.69. The Nasdaq Composite Index (.IXIC) was off 8.01 points to end at 2,212.49.
U.S. Treasury debt prices were mixed. The benchmark 10-year note rose 10/32 in price for a yield of 3.56 percent, down from 3.59 percent late Thursday.
Just before the employment report's release, the Fed said it was increasing the size of special auctions it conducts twice a month to add funds, or liquidity, into highly stressed capital markets. That should make it easier for businesses to borrow money needed to expand and to boost hiring.
President George W. Bush acknowledged an economic slowdown has begun but said his administration deserved credit for administering a "booster shot" in the form of a $152 billion economic stimulus program that should kick in by summer.
"We believe that the steps we've taken, together with the actions taken by the Federal Reserve, will have a positive effect on our economy," Bush said. Until now, the White House has maintained the economy was not at risk of recession and still resists questions whether a contraction is under way.
"Recessions are things that are declared by other people," White House Economic Adviser Edward Lazear said, though he conceded the Bush administration has "definitely downgraded" its forecast for first-quarter economic performance.
The jobs report is one of the first gauges of overall U.S. economic activity each month, and so the bleak February report sent a shock through the global financial sector.
WORST SINCE 2003
The back-to-back January and February job losses were the first consecutive monthly declines since May and June of 2003, shortly after the start of the U.S.-led invasion of Iraq.
Labor Department officials said February's job losses were the largest for any month since March 2003 when 212,000 jobs were cut.
Late on Friday, the Fed issued data showing consumers were still borrowing heavily to spend in January. Consumer credit outstanding climbed by $6.9 billion, nearly double December's $3.7 billion gain.
Many economists caution that the next wave of defaults on borrowing is likely to occur in consumer loans like those taken out to buy cars and to keep up credit-card payments.
During February, the U.S. unemployment rate eased to 4.8 percent from 4.9 percent in January, but that was because fewer people were in the labor force. The department said the number of people in the workforce fell by 450,000 in February, likely a sign that many people have given up trying to find a job.
Job losses were widespread. Some 52,000 jobs were lost at factories, the largest decline since July 2003 when 92,000 jobs were cut. Construction businesses eliminated another 39,000 on top of 25,000 cut in January, a reflection of the housing industry's deepening woes.
The department said that since the housing boom peaked in September 2006, construction businesses have cut 331,000 jobs.
Retailers also shed jobs last month, dropping 34,000 people off their payrolls, a possible reflection of concern that hard-pressed consumers are likely to begin pulling back sharply on spending.
In a statement issued with the data, Bureau of Labor Statistics Commissioner Keith Hall warned that many of this year's job losses may take a long time to come back.
(Reporting by Glenn Somerville; Editing by Neil Stempleman)