Friday, March 7, 2008

US loses 63,000 jobs as economic woes deepen

A stumbling US economy lost 63,000 jobs in February, according to a shockingly weak report released Friday as the top White House economic adviser warned the economy could shrink.
The Federal Reserve took fresh steps to pump liquidity into the stressed banking system, making up to 200 billion dollars available to fight a credit crunch related to the most severe housing slump in decades.
The Labor Department report showed the second straight month of losses in nonfarm payrolls, seen as one of the best indicators of economic momentum.
Revised data showed a loss of 22,000 positions in January, compared with a prior estimate of 17,000.
February's loss was the biggest since March 2003, at the start of the war in Iraq, and a major disappointment for analysts expecting a gain of 25,000 jobs. "The payrolls report had recession written all over it," said Avery Shenfeld, senior economist at CIBC World Markets.
"It's nearly unheard of to see these numbers outside of recession."
President George W. Bush's top economic adviser, Ed Lazear, did not rule out negative economic growth for the current quarter.
"We don't really know whether it will be negative or not," Lazear told reporters.
"This quarter will probably be our weakest quarter ... Whether you call that 'a recession' or not is something that we won't know for many months."
Bush warned Americans they would soon be feeling the pinch.
"I know this is a difficult time for our economy," Bush said in a brief televised statement.
"We will begin to see the impact over the coming months. And in the long run, we can have confidence that so long as we pursue pro-growth, low-tax policies that put faith in the American people, our economy will prosper."
The Labor Department said the unemployment rate, which is based on a separate survey, fell to 4.8 percent from 4.9 percent a month earlier. This is attributed to people dropping out of the workforce, after being unable to find jobs, according to officials.
The labor force available for work fell by 450,000 and the participation rate slipped 0.2 percentage points.
The payrolls report showed an economy quickly losing steam. Private sector payrolls fell 101,000, in a third month of decline, including a loss of 52,000 jobs in manufacturing and 39,000 in construction.
The main gains were in government, which added 38,000 jobs.
Overall, the report signaled a sharply weaker-than-expected performance for the US economy, which according to analysts needs to add at least 100,000 jobs per month to keep pace with new labor market entrants.
"The weakness in housing is starting to catch up to the rest of the economy," said Shenfeld.
The US economy expanded at an anemic 0.6 percent pace in the fourth quarter of 2007 and many analysts say they expect the first quarter to show declining activity for the first time since the recession of 2001.
"The question appears no longer to be are we going into a recession but how long and deep it will be," said Joel Naroff of Naroff Economic Advisors.
In a sign of continuing inflation pressures, the report said average hourly earnings rose 0.3 percent in February and 3.7 percent year-over-year.
The Fed has been cutting interest rates aggressively since September in an effort to reignite growth.
Minutes ahead of the Labor Department announcement, the Fed unveiled two initiatives to inject cash into the strapped financial market. It raised the amounts available in its Term Auction Facility program in which banks bid for loans to a combined 100 billion dollars this month.
It also launched a series of term repurchase transactions expected to reach 100 billion dollars to pump more liquidity into the banking system.
"This was a good news-bad news story," said Scott Brown, economist at Raymond James & Co. "It's good the Fed is coming to the rescue, the bad news is that they have to."
A number of economists say the rate cuts by the Fed and a 168-billion-dollar stimulus package approved by Congress will help stabilize the economy by mid-year.
"We're looking for a first-half recession followed by a recovery in the third quarter," Shenfeld said.

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