WASHINGTON -- In a renewed drive to end the recession, the Federal Reserve Board lowered its chief lending rate yesterday, shortly after the government reported a sharp loss of 232,000 jobs in January.
The nation's unemployment rate rose last month to 6.2 percent, the highest since mid-1987. The rise indicated that a serious downturn had extended into the new year.
Several major commercial banks quickly followed the Fed action by cutting their prime lending rates, a signal that banks could be planning to step up their lending and end the prolonged credit crunch.
Among the large banks in the mid-Atlantic region, Richmond-based Signet Banking Corp., parent of Signet Bank/Maryland, was the only one to follow the lead of the money-center banks, announcing that it will lower its prime rate to 9 percent Monday. Signet lowered its prime to 9.5 percent Jan. 3.
The stock market turned in a mixed performance in the face of the gloomy job figures, but the bond market soared with the prospect of still lower interest rates.
The Fed, concerned about the recession and under pressure from President Bush and Congress to lower rates, cut its discount rate -- the rate it charges financial institutions -- to 6 percent from 6.5 percent.
It was the second reduction in the widely watched rate in six weeks.
"Action was taken in light of further declines in economic activity, continued sluggish growth trends in money and credit, and evidence of abating inflationary pressures, including weakness in commodity prices," the Fed said in a statement.
Fed Chairman Alan Greenspan said earlier this week that the recession could be protracted and deep if the Persian Gulf war lasts beyond the middle of April. But sources close to Mr. Greenspan said he still thinks the downturn will be shallow and will end by summer if the war ends in the next two months, reviving consumer confidence.
While the discount-rate cut itself has little direct impact on other rates, it represents the central bank's most visible signal of its policy direction.
Economists said the Fed probably would, in coming days, move to lower other rates that more directly influence consumers.
But even before such a step, the leading commercial banks took a signal from the Fed and lowered their prime rate, cutting it by a half percentage to 9 percent. That, in turn, will lead to lower home-equity and other business and consumer loans.
The Fed, in an unusually rapid move, acted less than an hour after the Labor Department reported not only that payroll jobs dropped by 232,000 last month but that the revised number of lost jobs in December reached 148,000, almost twice the loss reported earlier.
Economists were divided over whether the jobs figures indicated a more severe recession lay ahead.
"The first quarter will be weaker, but we still think that the low inventory level, low inflation, strong exports and military spending will pull us out by mid-year," said Cynthia Latta, an economist at DRI/McGraw. "Yesterday's report is only one month and doesn't tell us anything that is really new."
But Allen Sinai, chief economist at the Boston Co., said the report "--es hopes that this would be a short, mild recession."
The jobless rate rose to 6.2 percent last month from 6.1 percent in December and 5.9 percent in November. The January rate was the highest since a similar 6.2 reading in June 1987, during a weak stretch in the economy. Over the past seven months, the unemployment rolls have grown by 1.2 million people as the nation ended eight years of economic expansion.
Economists had expected little if any added loss of payroll jobs last month, in part because retailers had kept a tight hold on pre-Christmas hiring. But according to a payroll survey, even the once-thriving service sector barely held its own. An exception was the still-booming health-care industry, reflecting the aging population.
Manufacturing jobs dropped by 69,000 in January, continuing a severe slump that cost almost 462,000 factory jobs over the past year. Within the factory sector, large losses were registered by -- the auto industry and construction-related industries such as lumber and wood products.
Construction jobs plummeted by 155,000 last month, partly due to poor weather, but the housing and commercial building industries have been in a severe slump.
"The decline in construction employment is now approaching 10 percent of this industry's employment," Janet Norwood, commissioner of labor statistics told the congressional Joint Economic Committee. Construction jobs have dropped by 462,000 in the last year.
In retail trade, jobs rose by 85,000 last month on a seasonally adjusted basis because layoffs were less severe than usual, but Mrs. Norwood said this sector remains weak.
Jobs in the finance industry continued to drop last month, as Wall Street retrenched. Payroll employment in this sector fell by 8,000 in January, and 39,000 over the past year. Business services, like data processing firms, lost 32,000 jobs last month, bringing the total loss for the past year to 90,000.
Health-service jobs continued to be robust, adding 39,000 last month and 595,000 since January 1990.
In a further sign of a weak economy, the average manufacturing work week fell by 30 minutes to 40 hours and 12 minutes last month.