Jobless rate keeps climbing

April rise, to 4.5%, continues trend that began 6 months ago

Recession fears grow


The job-creation machine went into reverse last month as companies shed employees across most sectors of the faltering economy.

The work force fell last month by an estimated 223,000 jobs after declining by 53,000 jobs the previous month, the Labor Department reported yesterday. The unemployment rate, which has been inching up since falling to 3.9 percent in October, rose again last month, to 4.5 percent from 4.3 percent in March.

After several years of expanding opportunity and rising income for millions of households, the back-to-back months of big job losses indicated to some analysts that the sluggish economy has become even weaker lately and might be nearing a recession or in one.

"These numbers mean that the economy is right now at about zero growth," said Peter Hooper, chief domestic economist for Deutsche Bank North America. "I don't see much of anything positive in this report."

Last month's job loss was the largest one-month decline since February 1991, during the most recent recession. The labor market has been weakening since spring of last year, but most of the weakness had been focused on manufacturing employees and temporary workers, many of them also in manufacturing. Now there is clear evidence that job cuts have spread through the vast service sector.

"The weakness in the economy is no longer a manufacturing story or a high-tech story," said William Dudley, director of domestic economic research at Goldman, Sachs. "It is much more broadly based."

The stock market seemed to treat the news as pointing to better times ahead. Prices rose on the major exchanges as investors apparently concluded that corporate America, in cutting labor costs, was acting quickly to revive profits.

The employment report also seemed to all but guarantee another half-point cut in interest rates when the Federal Reserve's policy-makers meet May 15. Falling rates usually encourage people to invest in stocks by reducing the return on alternative investments.

"Business is biting the bullet, quickly cutting labor costs, and the markets see this as good news for stock prices," said James Glassman, a senior economist at J.P. Morgan.

Not everyone shares that optimism. Rising unemployment is particularly hard on consumer confidence, and the unemployment rate is the highest since October 1998. The concern is that rising unemployment will make consumers pull back, weakening the economy even more and raising the unemployment rate further.

"The risk is that we are going to get caught in a vicious circle, with rising unemployment leading to cutbacks in spending, which lead to further job losses," Dudley said.

Most of the economic weakness has come from much lower spending by companies on machinery, computers and software.

A week ago, many experts said they thought the economy was beginning to recover. The Commerce Department reported that the nation's gross domestic product had grown at an annual rate of 2 percent in the first quarter, twice as fast as in the fourth quarter. The Fed's rate cuts - 2 percentage points since early January - and respectable consumer spending might be reviving the economy, some Wall Street economists said. The employment report threw cold water on that reasoning.

"The job numbers tell us that the second quarter is going to be weaker than the first quarter, although we might still be able to avoid a recession," said Sung Won Sohn, chief economist at Wells Fargo Bank in Minneapolis.

Under pressure from shrinking profits, corporate America appears to be shifting its strategy for cutting labor costs. Previously, managers had preferred to eliminate overtime, cut back hours and use fewer temporary workers. The April report offered the first clear evidence that employers were resorting more frequently to layoffs and hiring freezes. Hours worked last month fell sharply, but from the job losses rather than shorter workweeks, the Labor Department reported.

Conditioned by labor shortages in the late 1990s, "businesses had become reluctant to shed workers," Sohn said. "Now they are losing that reluctance and layoffs are becoming fashionable."

The shift is reflected in the unemployment data. Nearly 3 million of the 6.4 million people who were unemployed last month had lost their jobs within the previous five weeks. That was 46 percent of all the unemployed, up from 43 percent in March.

"The flow of new people into unemployment is clearly rising," said Thomas Nardone, chief of the division that compiles the job figures at the Bureau of Labor Statistics.

The Bush administration saw the latest jobs report as a justification for the $1.3 billion tax cut that Congress seems on the verge of adopting. "We need to give the economy room to breathe, and the first essential step is the president's tax cut," Labor Secretary Elaine L. Chao said.

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