United States employers cut jobs last month for the first time in more than four years, the starkest signal yet that the economy is grinding to a halt if it hasn’t already toppled into recession.
Conditions are deteriorating, according to the latest employment snapshot by the Labor Department, which showed nervous employers slicing payrolls by 17,000. The country hadn’t seen such a nationwide job loss since 2003, when employers were still struggling to recover from the last previous recession.
“We are certainly on thin ice,” said John Silvia, chief economist at Wachovia. And even President George W Bush, normally a cheerleader for the economy, said there were “serious signs” it was weakening.
Wall Street, however, took the news in stride. The Dow Jones industrials rose 92.83 points to 12,743.19 on Friday.
Job losses were widespread in January. Factories, construction companies, mortgage brokers and real-estate firms were among those eliminating jobs – casualties of the housing bust and credit crunch. The government cut jobs for the first time since last July.
All those cuts swamped job gains in education, health care, retailing and elsewhere.
The unemployment rate actually dipped slightly to 4.9 per cent, from 5 per cent in December, as people left the labor force.
“Discouraged by a sluggish job market, many more adults are sitting on the sidelines,” said Peter Morici, an economist and business professor at the University of Maryland.
Wage growth also slowed, another indication of belt-tightening. Smaller wage gains could make people who still have jobs – already squeezed by high energy prices – reluctant to spend, further hurting the economy.
Bush prodded Congress anew to quickly pass an economic rescue package.
“There’s serious signs that ... the economy is weakening and that we’ve got to do something about it,” Bush said. In Congress, Democratic and Republican supporters of a stimulus package – including tax rebates for people and tax breaks for businesses – agreed the gloomy employment report underscored a need for urgency. The package is pending in the Senate, where there are disputes over attempts to expand it.
The Democratic presidential contenders, Sens. Hillary Rodham Clinton and Barack Obama, said the job losses were evidence of failed Bush policies. “We are sliding into a second Bush recession,” Clinton said. Obama called the employment figures “troubling news” and urged Congress to extend unemployment benefits “for more time and to more people.”
To help ease the credit crisis, the Federal Reserve announced it would provide cash-strapped banks with an additional $60 billion (Dh219 billion) in short-term loans through auctions later this month. The Fed started the auctions in December and has already provided $100 billion (Dh365 billion) in loans to banks.
With fears of recession growing, the Fed has gotten much more aggressive – ordering two big interest rate reductions in just over a week. A severely depressed housing market, hard-to-get credit, turbulence on Wall Street and “some softening in labor markets” were cited by the Fed when it lowered rates by a bold half-point on Wednesday. The weak employment report would justify additional rate cuts, economists said.
The health of the nation’s job market is a critical factor shaping how the overall economy fares. If companies continue to cut back on hiring and put a lid on wages, that will spell more trouble.
People running companies are concerned.
“They are thinking if there is some capital spending I should postpone for a while, I should do that. If there is some hiring I don’t necessarily need to do right now, I can put that off for a few months to see what happens,” said Joel Naroff, president of Naroff Economic Advisors. “The problem with that thinking is that more economic weakness or a recession can become somewhat of a self-fulfilling prophecy.”
Average hourly earnings for jobholders rose to $17.75 (Dh65) in January, a 0.2 per cent increase from the previous month. It was half the pace logged in December. Over the past 12 months wages went up by 3.7 per cent. With high energy and food prices, though, workers may feel like their paychecks aren’t stretching as far.
The unemployment rate had shot up in December to 5 per cent, from 4.7 per cent in November. The magnitude of that increase – something not seen since right after the September 2001 terror attacks –set off alarms. In the past, such a big increase has signaled the economy was starting a recession or already in one.
With economic growth slowing this year, the unemployment rate will climb again. In fact, Mark Zandi, chief economist at Economy.com, predicts the jobless rate will rise to near 6.5 per cent in early 2009.
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