Friday, February 01, 2008
Economic Trends
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February 1, 2008
U.S. Economy Unexpectedly Sheds 17,000 Jobs
By MICHAEL M. GRYNBAUM
The economy lost 17,000 jobs in January, the Labor Department reported on Friday, the first monthly decline in four years and the most striking evidence yet that the United States may be slipping into a recession.
Until now, the labor market had been growing at a steady if softening pace. Many economists pointed to expanding payrolls as the final holdout in a sluggish economy weighed down by trouble on Wall Street, the collapse of the housing bubble, and a cascade of credit problems linked to soured subprime mortgages.
But the January employment report cast the job market in a startlingly darker light. Jobs disappeared across a broad spectrum of professions, with the steepest losses coming in the manufacturing, construction and goods-producing industries.
Adding to the gloom, the government said that the level of employment was sharply lower in December than it had originally estimated. The new figure was based on an annual review of every job covered by unemployment insurance.
“This is the clearest signal yet that the job market is either in or teetering on a recession,” said Jared Bernstein, senior economist at the liberal Economic Policy Institute in Washington.
The decline, the first since August 2003, caught economists by surprise. Forecasters had predicted a substantial gain in January payrolls, and early signs pointed to a relatively strong report.
President Bush, speaking to reporters in Kansas City, Mo., used the report to urge Congress to quickly pass a proposed fiscal stimulus package.
“There are certainly some troubling signs, serious signs that the economy is weakening, and we’ve got to do something about it,” he said.
Mr. Bush said he was confident of the economy’s fundamental strength but that the employment report showed reasons for concern. “I think government can take decisive action to help us deal with this period of uncertainty,” he said.
And with voters in the early primary states expressing concerns about the economy, the presidential candidates were quick to weigh in.
In a statement, Senator Hillary Rodham Clinton said the economy was “sliding into a second Bush recession.” And Douglas Holtz-Eakin, who advises Senator John McCain on economic matters, called the report sobering. “We are growing too slowly,” he said. “Americans know it, and certainly Senator McCain knows it.”
Employment data can be quite volatile from month to month. The government last reported a monthly decline in August 2007, when its initial estimate that payrolls shrank by 11,000 jobs sent stock markets into a tailspin. But that figure was later revised up to a 74,000 gain.
Just last month, the December report showed an anemic 18,000 rise in payrolls, prompting a significant downturn in the stock market that led to one of Wall Street’s worst January performances ever. On Friday, the Labor Department raised that estimate to a gain of 82,000 jobs.
“It’s only one month,” said Ethan Harris, chief United States economist at Lehman Brothers. “The first thing you learn as an economist is one month doesn’t make a trend.”
Mr. Harris noted that a 17,000 job loss was “an incredibly tiny number” in the context of the overall labor market, which consists of about 130 million jobs. “It could be just a simple statistical quirk,” he said.
Other economic data released on Friday pointed to a more optimistic outlook. Consumer confidence grew in January, according to a survey by the University of Michigan and Reuters. And manufacturers appeared to recover from a sudden drop in business in December, as a closely watched indicator — a survey by the Institute for Supply Management — ticked up on a surge in foreign and domestic demand.
The unemployment rate in January fell back slightly, to 4.9 percent, after jumping to 5 percent in December.
But that was one of few strong spots in the report. Payrolls at private companies increased by a mere 1,000 jobs. Businesses are reducing the number of hours that their employees work.
And workers’ salaries have effectively fallen in the last 12 months. The average hourly wage for rank-and-file workers — about 80 percent of the total work force — rose 3.7 percent since last January, below the pace of inflation.
Average hourly earnings ticked up 0.2 percent last month, slowing from a 0.4 percent rise in December.
Some economists said the poor report meant the Federal Reserve made the right move in aggressively cutting interest rates over the last two weeks, and was likely to ease again at its next meeting in March.
“If you’re someone who spent the last six months saying this is Wall Street making a big deal out of nothing, you’ve got egg on your face this morning,” said Robert Barbera, chief economist at ITG.
Mr. Barbera said that with the economy slowing to a stall, businesses that had tried to avoid cutting jobs may no longer be able to hold out.
“Capitulation is going on,” he said. “Corporations have decided it’s been disappointing enough for long enough to start paring back.”
David Stout contributed reporting.
