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Jobs Data Add Fuel to Recession Fears
In Over Four Years;
Broad-Based Losses
February 2, 2008; Page A2
The economy unexpectedly lost jobs last month, with the broad-based declines painting the clearest picture yet of a nation headed toward recession.
The Labor Department reported that nonfarm employment in January fell by 17,000 jobs, the first drop in more than four years. The losses were heaviest in the manufacturing and residential-construction industries, followed by financial services and state government.
But the unemployment rate, based on a separate survey of households, fell to 4.9% from 5%, suggesting the jobs decline may be overstating how abruptly the economy slowed from December to January. And employment rose in education and health services, as well as in the hospitality and retail sectors.
The overall jobs decline in January suggested an unsettling scenario: The labor market, which had been resilient in the face of the subprime-mortgage crisis and the credit crunch, may now be succumbing. "When push comes to shove, the final linchpin is the employment number," said John Silvia, chief economist at Wachovia Corp. "When that number falls, you're in trouble."
"If this decline is sustained over the next six to nine months, it is very likely this period will be declared a recession," he said.
The data vindicated the Federal Reserve's 1.25 percentage points of cuts in short-term interest rates to 3% in the last two weeks and suggest the central bank will lower rates again at its March 18 meeting, if not sooner. Futures markets were split Friday on whether the Fed would lower rates by a quarter or half a percentage point by April.
"The January data leave little doubt that the deepening housing recession is taking an increasingly heavy toll on the overall economy," said David Resler, chief economist at Nomura Securities, in a note to clients.
There were a few bright spots in the report besides the drop in the unemployment rate. For example, the economy added a revised 82,000 jobs in December -- not the 18,000 originally thought. But there also were downward "benchmark" revisions to eight of the 12 months of 2007, stripping 332,000 jobs from the previously reported totals. The average work week dipped to 33.7 hours in January from 33.8 the month before, and hourly wage gains slowed to 0.2% from 0.4%.
President Bush, speaking to reporters in Kansas City, Mo., said the report contained "troubling signs" and urged Congress to quickly pass a $150 billion stimulus package.
Some economists suggested the rough patch may be temporary. "I suspect businesses are sitting on their hands a little bit at the beginning of the year to see how things play out," said Stephen Stanley, chief economist at RBS Greenwich Capital in Stamford, Conn. But he also warned that a weakening labor market could hurt consumer spending, the major driver of economic growth.
A separate Reuters/University of Michigan report Friday found that consumer sentiment nudged up to 78.4 in January from 75.5 in December, but it was well below the 96.9 level a year ago.
"The largest proportion of consumers in nearly two decades reported financial distress," said Richard Curtin, who directs the consumer survey. About half said they expected the unemployment rate to rise this year.
Employment in the construction industry decreased by 27,000 jobs in January and has fallen by 284,000 since its September 2006 peak. A separate government report found construction spending dropped 1.1% in December from the previous month and was down 2.3% from the previous year. The value of residential construction put in place last year sank 18.3% from the year before.
William C. Foote, chairman and chief executive of USG Corp., a Chicago building-products company, said his company has "aggressively" removed excess manufacturing capacity, cut expenses and reduced employment. "It's a difficult market," he said in a conference call Tuesday.
Commercial banking lost 4,000 jobs last month. Manufacturing, which has been dwindling for years, lost 28,000 jobs. A gauge of manufacturing activity from the Institute for Supply Management, also released Friday, rose 2.3 percentage points to 50.7; a number above 50 means the sector is expanding. Still, the employment index dipped 1.6 points to 47.1, the lowest level since September 2003.
In addition, government employment fell by 18,000 jobs in January, perhaps due to budget shortfalls in areas most affected by the housing crisis. Palm Beach County, Fla., has instituted a partial hiring freeze, with only public-safety jobs like firefighters exempt. The county recently laid off 25 people in its building department and has nearly 600 job vacancies. "Every position that we fill is only for critical needs," said County Administrator Robert Weisman.
--Conor Dougherty contributed to this article.
Write to Kelly Evans at kelly.evans@wsj.com
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