Mortgage Crisis, Job Loss...Recession?

Sept. 8, 2007 — -- In the wake of news that 4,000 jobs were lost in August, new fears are arising about the state of the economy.

The job loss represents the first monthly decline in four years -- prompting speculation that we're headed for a serious economic slowdown, or even a recession.

For Jim Dell'Anno, who lost his job as a mortgage broker, the news is nothing new. Like millions of other Americans, he's living proof that the housing and credit crisis, which has roiled the financial world, has caught up with the real world.

"It doesn't shock us at all when things like this happen," he said.

It's not just the housing industry taking a hit. Manufacturing and construction, two of the biggest bellwethers in economic growth, have both been hit hard by job losses.

"This is a big deal," said Bill Cheney, vice president of John Hancock Financial Services. "The performance of the economy over the last few months is quite a bit weaker than we thought it was, even yesterday."

The news all but guarantees that the Federal Reserve, which has steered clear of cutting interest rates, will be forced to make a move. It will need to be a move that will encourage consumers to borrow more money, and in turn spend more.

But it may be too little too late. For months, experts have been screaming for the rate cut.

"We worry about a weak labor market sliding further into recession," Cheney said.

Perhaps the most startling part of the job loss is that no one expected it. In fact, most expected 100,000 new jobs would be created.

While these numbers will most likely be revised in the next few months, it does give the Federal Reserve ammunition to cut interest rates significantly, hoping that will help stave off a recession.