US - ECONOMY

US economy loses jobs

Friday, February 1, 2008

The US economy suffered 17,000 job losses in January, marking the first monthly loss since August 2003, surprising economists and aggravating fears that the economy is falling into a recession.

The US economy suffered 17,000 job losses in January marking the first monthly losses since 2003, a government snapshot showed Friday in a fresh sign of brewing economic trouble.
  
The surprise loss in nonfarm payrolls caught most economists off guard as many had predicted that employment growth would continue in January.
  
Economists had anticipated that the world's biggest economy would create 70,000 new jobs in January, but the Labor Department said payrolls fell for the first time since August 2003.
  
"We should expect to see more bad news on the labor market, at least through the middle of the year, before the heavy doses of monetary and fiscal stimulus begin to kick in," said Nigel Gault, an economist at Global Insight.
  
The government revised December's job growth significantly higher to show 82,000 new posts were created compared with an initial estimate of 18,000 positions.
  
The national unemployment rate, based on a separate survey, declined slightly to 4.9 percent last month compared with 5.0 percent in December. Economists said this was partly because fewer people were seeking work.
  
"Overall this report has a feeling that the job cycle is in danger of weakening further and even though the unemployment rate decline was welcome, it unfortunately has the look of a down blip in a rising trend so unemployment is still likely to trend up over time," said Ian Morris, a chief US economist at HSBC North America.
  
"Ultimately, it means the Fed has got to keep cutting rates," Morris said.
  
The monthly job survey was released after the government reported Wednesday that US economic growth slowed dramatically to a 0.6 percent annualized crawl in the fourth quarter of 2007 from a blistering 4.9 percent in the prior quarter.
  
The Federal Reserve has launched an aggressive rate-cutting drive to shore up growth amid mounting fears that the economy could be falling into a recession.
  
Congress is meanwhile debating an economic stimulus plan worth around 150 billion dollars amid rising political angst about the state of the economy.
  
A persistent housing slump is threatening to derail growth as well as triggering job losses.
  
A total 27,000 jobs were shed in the construction industry in January, partly as home builders cut back on new developments.
  
The manufacturing industry also fared badly as 28,000 jobs were lost in the sector while professional and business services companies laid off 11,000 white-collar employees.
  
The layoffs are likely to trouble the Fed as it suggests some sectors of the economy are in retrenchment despite sustained moves by the central bank since September to slash borrowing costs.
  
The Fed cut its key federal funds interest rate by half a percentage point to 3.00 percent on Wednesday in a bid to underpin economic momentum, eight days after slashing borrowing costs by an historic three quarters of a percentage point.
  
Stephen Gallagher, an economist at Societe Generale, agreed with Morris's outlook that the job losses would pressure the Fed to trim rates further.
  
"The Fed has already cut aggressively in the past two weeks and the moves are validated by employment weakening. The Fed is expected to continue offering support to the economy and the question is when," Gallagher said.
  
Central bank policymakers are next scheduled to meet on March 18 although they can hold a rate meeting anytime they want.
  
Job losses have spread into business services as major banks, such as Citigroup and Lehman Brothers, and ailing mortgage companies have laid off workers.
  
Some industries hired new employees last month, however.
  
The education and health services sectors hired 47,000 new workers during the first month of the year while the retail industry added 11,000 new positions.
  
Average hourly earnings increased 0.2 percent last month to 17.75 dollars, against analyst expectations that earnings would rise 0.3 percent.

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