Employers cut jobs for a second month in February while the unemployment rate fell as more people quit looking for work in the weakening job market, the government said Friday in a report that led to further calls of a 2008 recession.
President Bush, responding to the report, said "it's clear our economy has slowed, " and he tried to reassure an anxious public that the long-term outlook is good.He also gently urged taxpayers to spend the rebate checks due to them within months from a stimulus package.
Earlier, his top economic adviser, Edward Lazear, acknowledged that it is possible the economy shrank in the current January-to-March quarter. Lazear's comment is the most pessimistic assessment heard out of the White House.
Shortly before the jobs report was released, the Federal Reserve underscored its concern for the economy by saying it will pump more cash into financial markets to try to ease credit.
The Fed said it will raise its planned March 10 and March 24 auctions to $50 billion each, from $30 billion it had previously announced. The auctions serve as short-term loans to get banks the cash they need to keep lending.
Fed officials also said they would move to even larger amounts at future auctions if necessary.
And the Fed announced another effort to ease credit — a series of repurchase transactions expected to reach $100 billion. In those moves, the Fed buys securities, giving the sellers immediate cash.
The move came after the Fed saw an acceleration in the past few days in a deterioration in credit markets that has been underway worldwide for several weeks, senior Fed staff members said. They stressed the move was not in direct response to the jobs report.
Ultimately, the hope is that the added liquidity will help ease lending conditions, which will in turn help the entire economy, the staff members said.
The Fed also reported Friday that consumers increased their borrowing at an annual rate of 3.3% in January, especially relying on credit cards to finance their purchases. That was up from a 1.8% growth rate in December.
The jobs report said businesses cut a seasonally adjusted 63,000 workers in February, worst monthly showing in nearly 5 years, the Labor Department said. The decline followed a loss of 22,000 jobs in January, worse than the 17,000 initially reported. It was the first time jobs were cut for two straight months since May and June 2003.
The unemployment rate, which is calculated based on a separate survey of households rather than employers, fell to 4.8% in February from 4.9% in January. But that showed 450,000 people exited the labor force — the unemployment rate is calculated based on the number of people working and looking for work. Many of those who left the job market said they wanted a job, but were discouraged, according to the Labor Department.
The data Friday "are a strong indication that the economy has fallen into recession," Bear Stearns economists, who have previously been hesitant to call a downturn, said in a statement. "We think the recession began in December 2007, which makes the last economic expansion six years and one month long."
Says Moody's Economy.com economist Sophia Koropeckyj, "There is little silver lining in this report." She says layoffs will likely increase as the year progresses, as consumer spending weakens and business confidence wanes.
But in its report to clients, First Trust Advisors economists Brian Wesbury and Robert Stein said: "Today's report on payrolls is disappointing but not nearly as bad as many are making it out to be.
"Reports on layoffs in February ran below the level of February 2007 and unemployment claims are not signaling recession. What we have is a temporary hiring freeze at many firms in response to fears of a recession, not the kind of layoffs that occur during actual recessions," they said.
The dismal employment report came 15 minutes after the Federal Reserve announced it was taking additional action to help loosen conditions in credit markets.
"The Federal Reserve is in close consultation with foreign central bank counterparts concerning liquidity conditions in markets," the Fed said in its statement.
The Fed has already cut its target for short-term interest rates, which influences borrowing costs across the economy, to 3% from 5.25%, where it stood in September. Fed Chairman Ben Bernanke and his colleagues are widely expected to cut rates again when they meet March 18, if not before.
The cut could be dramatic, according to a futures market in which participants bet on future Fed moves. Bear Stearns said the Fed could cut another three-quarters of a percentage point this month, in part based on the latest jobs data.
Job cuts were seen in a wide variety of industries in February, suggesting the weakness is spreading far beyond the hard-hit housing sector:
•Manufacturing firms cut 52,000 workers.
•Retailers cut 34,100 workers.
•Construction companies cut 39,000 workers.
•Financial firms, which include insurance and real estate companies, cut 12,000 workers.
There were a few bright spots. Some 36,000 jobs were added in health care and 21,000 were added in the leisure and hospitality industry in February, the government said. Federal, state and local governments also added employees.
There are signs that job losses are leading consumers, the engine of the U.S. economy, to hold back.
Valentine's Day sales were up from a year ago across the country for florist Telefora. But growth was far stronger in states that have seen little change or drops in their unemployment rates vs. those that have seen large increases, says Shawn Weidmann, the company's president.
For example, in Wisconsin, where the unemployment rate rose from 4.9% in December 2006 to 5% in December 2007, latest state data available, Valentine's orders surged by triple digits. But in Connecticut, where the unemployment rate rose from 4.1% to 5% at the end of the year, sales growth was lower than the national average.
Friday's employment report also revised some earlier figures downward. It said, for example that only 41,000 jobs were created in December, half the 82,000 originally reported.
The report was much weaker than economists were expecting. They were forecasting employers to boost payrolls by around 25,000.
Workers with jobs, however, saw modest wage gains.
Average hourly earnings for jobholders rose to $17.80 in February, a 0.3% increase from the previous month. That was on target with forecasts. Over the past 12 months, wages were up 3.7%. With high energy and food prices, though, workers may feel squeezed and feel like their paychecks aren't stretching that far.