Biggest drop in five years another sign that economy is on the decline
WASHINGTON – THE United States unexpectedly lost jobs last month for the second consecutive month, adding to evidence that the economy is in a recession.
Payrolls fell by 63,000, the most in five years, after a revised decline of 22,000 in January, the Labour Department said yesterday in Washington.
The jobless rate declined to 4.8 per cent, reflecting a shrinking labour force as some people gave up looking for work.
‘All the lights are flashing red,’ said Mr Nariman Behravesh, the chief economist at Global Insight in Massachusetts, in an interview with Bloomberg Television. ‘We’re in a recession. I don’t think there is any doubt about it at this point.’
Treasury notes soared after the report on concern that the weakening labour market – combined with lower home prices, higher fuel bills and a global credit squeeze – will force consumers to cut spending further.
Minutes before the figures were released, the US Fed said it would expand two short-term auctions this month to US$100 billion (S$139 billion) to address ‘heightened liquidity pressures’ in markets.
Traders now expect Fed chairman Ben Bernanke and his team to cut their benchmark interest rate by at least three-quarters of a percentage point at or before their March 18 meeting.
Economists had projected that payrolls would rise by 23,000, following a previously reported 17,000 drop in January, according to the median of 76 forecasts in a Bloomberg News survey.
The jobless rate was forecast to rise to 5 per cent from January’s 4.9 per cent, with estimates ranging from 4.8 per cent to 5.2 per cent.
Revisions reduced by half the 82,000 increase in payrolls previously reported for December last year.
Service industries, which include banks, insurers, restaurants and retailers, added 26,000 workers last month. Retail payrolls fell by 34,100, the biggest drop in more than five years.
Payrolls at builders fell 39,000, the eighth consecutive month of cutbacks.
Home builders are trimming staff as the biggest housing slump in a quarter century deepens. Commercial building projects are also declining, indicating that firings at non-residential builders are likely to rise.
The real estate recession and financial market meltdown have led to growing dismissals at banks, mortgage and management firms.
‘There’s significant weakness in the job market because of construction declines,’ said Mr David Berson, the chief economist at California-based PMI Group, the second-largest US mortgage insurer. ‘For the next six months or so, we may get small negative numbers on payrolls.’
Manufacturing payrolls dropped by 52,000, the biggest decline since July 2003, after falling by 31,000 a month earlier. Economists had forecast a drop of 25,000.
Americans, whose spending accounts for more than two-thirds of the economy, are less upbeat about finding work, a Conference Board report showed last week. The share of consumers who said that jobs are plentiful fell and the proportion who said jobs are hard to get jumped, pushing consumer confidence down to a five- year low last month.
‘The economic situation has become distinctly less favourable,’ Mr Bernanke said in testimony to Congress last week.
The Fed chairman referred to ‘downside’ risks for the economy four times, including ‘the possibilities that the housing market or the labour market may deteriorate more than is currently anticipated and that credit conditions may tighten substantially further’.
Source: REUTERS (The Straits Times 8 Mar 08)