Payrolls plunge, stunning experts

U.S. economy sheds more than 300,000 jobs, spurring recession fears

March 08, 2003|By William Patalon III | William Patalon III,SUN STAFF

The U.S. economy lost more than 300,000 jobs last month - stunning economists who had expected a small increase, and touching off fears the vulnerable economy will drop back into recession.

The job losses, the most since the September 2001 terrorist attacks, pushed the nation's unemployment rate up to 5.8 percent, the Labor Department said yesterday. Nearly every sector felt the pinch.

"The risk of a double-dip recession is now 50-50," said Stan Shipley, a senior economist for Merrill Lynch in New York. "Recessions and double-dips take on a life all their own," spawning a cycle of corporate cost cutting and joblessness that's very difficult to halt once it gets started.

The increase in the jobless rate was only one-tenth of a percent, but it was the huge loss in jobs that shocked economists.

In January, job rolls rose by 185,000 positions. Last month, though, companies slashed 308,000 jobs. The report was particularly stunning because most economists had expected an increase of about 10,000, according to a survey of 65 forecasts by Bloomberg News.

The job-growth number is among the most important of all economic indicators. Consumer spending fuels two-thirds of U.S. growth, but consumers have to have jobs - and rising incomes - to spend.

Income growth was actually one of the few bright spots in yesterday's report. Average hourly earnings rose 0.7 percent, or 11 cents an hour, in February, after declining by 0.1 percent in January.

In the past six months, however, the economy has shed 366,000 jobs. The losses reported yesterday - one day after President Bush appeared on national TV to bolster support for a possible U.S. attack on Iraq - gave Democrats ammunition to condemn the president's policies.

"With the economy hemorrhaging jobs from every sector, an increasing number of Americans are losing faith that they will ever find a job," said Senate Democratic leader Tom Daschle of South Dakota. "But the Bush administration has turned its back on the problems of American families. Instead of offering new ideas and new solutions, the White House continues to push a tired ideology that has turned our economy into a job-destroying machine."

Treasury Secretary John W. Snow said the report "underscores the importance of swiftly enacting President Bush's jobs and growth plan which will give our economy a much needed boost and help Americans find work. ... Our economy will add about 1.4 million new jobs under this plan by the end of next year - that's the best kind of help to a lot of families who really need it."

Many experts say the seeds for the current malaise were sown during the latter half of the 1990s, when former President Bill Clinton's policies and an overly generous monetary stance by the nation's central bank created a false sense of prosperity and a stock-market bubble that had to burst.

"There is no quick fix" for the problems the economy currently faces, said Robert Mewshaw, president of Lutherville money manager Van Sant & Mewshaw. The jump in joblessness "is a reminder, once again ... that the inept policies of the nation's central bank have had no effect."

Many economists, including Shipley, believe there's a strong possibility that the Federal Reserve Board will cut interest rates again at its next meeting, scheduled for March 18.

Central bank policy-makers aren't going to have a lot of room to maneuver: They cut the benchmark federal funds interest rate by half a percentage point at their meeting in November, which took it down to a 41-year low of 1.25 percent. It was the first rate cut since Dec. 11, 2001 , the last of 11 reductions in the federal funds rate, a series of moves the central bank made to revive a flagging economy.

Despite the economy's recent fits and starts, many economists had until yesterday been fairly upbeat about the nation's outlook, attributing the recent stumbles to the winter's deep freeze and widespread corporate indecision about hiring and spending that was due to the possible war with Iraq.

"It's the war question," said Pradeep Ganguly, chief economist for the Maryland Department of Business and Economic Development. The economy's recent problems have "been probably more a reflection of uncertainty about the war, than [uncertainty] about the economy."

For those already suffering from that uncertainty, yesterday's report could be "devastating," Ganguly said.

U.S. Labor Secretary Elaine L. Chao underscored that in an interview with CNBC, stating that "what we are seeing is that employers are still relying more on overtime than new hiring, and this speaks to business confidence."

According to the Labor Department, jobs in service industries declined by 204,000 in February, the largest drop since November 2001. Retail jobs plunged by 92,000. Manufacturing shed jobs for the 31st straight month, cutting 53,000 positions in February after paring 4,000 in January. Construction employment fell by 48,000 last month, after increasing 26,000 in January.

Despite yesterday's report, many economists say the economy will recover.

"This is just increasing pent-up demand across the economy," said Anirban Basu, chief executive officer of Optimal Solutions Group, an economic consulting company in Baltimore. "It will be reflected," by a big burst of growth, once the uncertainty about Iraq is resolved.

Bloomberg News contributed to this article.

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