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US employers cut 63,000 jobs in February

Payroll data indicate that probability of recession is more than 50 per cent

(WASHINGTON) US employers cut payrolls for a second straight month during February, slashing 63,000 jobs for the biggest monthly decline in nearly five years as the nation’s labour markets weakened steadily, a government report yesterday showed.

The Labor Department said that last month’s cut followed an upwardly revised loss of 22,000 jobs in January rather than the 17,000 reported a month ago. It also said that only 41,000 jobs were created in December, half the 82,000 originally reported.

‘This confirms the fears that have been lurking in the financial markets in recent weeks. The

probability of a US recession is at more than 50 per cent,’ said Richard DeKaser, chief economist for National City Corp in Cleveland.

‘The Fed has to be more aggressive,’ he added. The US central bank is expected to cut interest rates again later this month and yesterday, just before the payrolls report became public, announced new measures to add liquidity to severely strained credit markets that are near seizing up.

The Federal announced that it was increasing the amount of money it will auction to banks this month to US$100 billion. It will make two moves to increase liquidity in the credit markets. First, it will increase the size of its March 10 and 24 auctions to banks to US$50 billion each. The auctions had been set for US$30 billion apiece initially. Fed officials said that they are prepared to move to even larger amounts at future auctions if necessary.

The Fed also said that, starting yesterday, it will begin a series of repurchase transactions expected to reach US$100 billion.

US Treasury debt prices shot up in anticipation that the Fed will cut interest rates while stock futures weakened sharply. The US dollar’s value was at a record low against the euro after the unfavourable employment report was issued.

The back-to-back January and February job losses were the first consecutive monthly declines since May and June of 2003.

The February jobs report was more bleak than expected.

Economists surveyed by Reuters forecast that 25,000 jobs would be added to payrolls last month.

They had forecast that the unemployment rate would edge up to 5.0 per cent.

Department officials said that February’s job losses were the largest for any month since March 2003, when 212,000 jobs were cut.

During February, the national unemployment rate eased to 4.8 per cent from 4.9 per cent in January, but that was because fewer people were in the labour force. The department said that the number of people in the workforce fell by 450,000 in February.

Job losses were widespread. Some 52,000 jobs were lost in the manufacturing industries, the largest decline since July 2003 when 92,000 jobs were cut. Construction businesses eliminated another 39,000 jobs on top of 25,000 that were cut in January, a reflection of the housing industry’s deepening woes.

Retail industries also shed jobs last month, dropping 34,000 people off their payrolls, a possible reflection of concern from businesses that hard-pressed consumers are likely to begin pulling back sharply on spending.

Source: Reuters, AFP (The Straits Times 8 Mar 08)

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