U.S. Economy: Payrolls Unexpectedly Decline for Second Month

By Shobhana Chandra
March 7 (Bloomberg) -- The U.S. unexpectedly lost jobs in February for the second consecutive month, adding to evidence the economy is in a recession.
Payrolls fell by 63,000, the most in five years, after a revised decline of 22,000 in January, the Labor Department said today in Washington. The jobless rate dropped to 4.8 percent, reflecting a shrinking labor force as some people gave up looking for work.
``All the lights are flashing red,'' said Nariman Behravesh, chief economist at Global Insight Inc. in Lexington, Massachusetts, in an interview with Bloomberg Television. ``We're in a recession. I don't think there is any doubt about it at this point.''
Treasury notes soared after the report on concern that the weakening labor market, combined with lower home prices, higher fuel bills and a global credit squeeze, will force consumers to further reduce spending. Minutes before the figures were released, the Federal Reserve said it will expand two short-term auctions this month to $100 billion in an effort to address a deepening credit crisis.
Traders now anticipate Fed Chairman Ben S. Bernanke and his team will cut the benchmark interest rate by at least three quarters of a percentage point at or before their March 18 meeting.
``We now think the economy can be described as having entered a recession in early 2008,'' said Bruce Kasman, chief economist at JPMorgan Chase & Co. in New York. In a note last week, he wrote that some of the forces that signal the start of a recession ``have not taken hold.''
Worse Than Anticipated
Economists had projected payrolls would rise by 23,000 following a previously reported 17,000 drop in January, according to the median of 76 forecasts in a Bloomberg News survey.
Service industries, which include banks, insurance companies, restaurants and retailers, added 26,000 workers last month. Retail payrolls fell by 34,100, the biggest drop in more than five years.
Payrolls at builders fell 39,000, the eighth consecutive month of cutbacks. Homebuilders are trimming staff as the biggest housing slump in a quarter century deepens. To make matters worse, commercial construction projects are now also on the decline, indicating firings at non-residential builders are likely to increase.
``This is going to be a weak quarter,'' Edward Lazear, chairman of the White House Council of Economic Advisers, said in a Bloomberg Television interview from Washington. He said the Bush administration expects ``close to a zero quarter'' in terms of gross domestic product growth. ``I wouldn't say negative, that's still up for grabs,'' he said.
Housing Meltdown
The real estate recession and meltdown in financial markets have led to growing dismissals at banks, mortgage and management companies.
Still, investors would be mistaken to assume the Fed will continue to cut rates as deeply as it has already this year, Dallas Fed President Richard Fisher said in an interview with Bloomberg Television in Paris today.
``I would discourage you from thinking that simply because of a significant action in the credit markets, like we had yesterday, that suddenly we're going to have an Open Market Committee meeting, and that suddenly we're going to move fed funds rates in response,'' Fisher said. ``It doesn't work that way.''
Manufacturing Downturn
Manufacturing payrolls dropped by 52,000, the biggest decline since July 2003, after falling 31,000 a month earlier. Economists had forecast a drop of 25,000.
Government payrolls increased by 38,000. That means the total decline in private payrolls for the month was 101,000, the biggest drop since March 2003.
The average work week was unchanged at 33.7 hours. The average factory work week and overtime hours were unchanged. Average weekly earnings rose $1.68 to $599.86.
Workers' average hourly wages rose 5 cents, or 0.3 percent, to $17.80, in line with forecasts. Hourly earnings were up 3.7 percent from February 2007. Economists surveyed by Bloomberg had forecast a 3.6 percent gain for the 12-month period.
Americans, whose spending accounts for more than two-thirds of the economy, are less upbeat about finding work, a Conference Board report showed last week. The share of consumers who said jobs are plentiful fell and the proportion who said jobs are hard to get jumped, pushing consumer confidence down to a five- year low in February.
Bernanke Outlook
``The economic situation has become distinctly less favorable,'' Bernanke said in testimony to Congress last week.
The Fed chairman referred to ``downside'' risks for the economy four times, including ``the possibilities that the housing market or the labor market may deteriorate more than is currently anticipated and that credit conditions may tighten substantially further.''
The central bank's regional economic survey this week said ``the hiring pace slowed in various sectors and labor markets loosened somewhat in many districts,'' as economic growth cooled in eight of 12 regions since the start of 2008.
Adecco SA, the world's biggest temporary-employment company, said this week that fourth-quarter profit declined as hiring slowed in the U.S. The Swiss company also said it may miss its long-term goal of sales growth of 7 percent to 9 percent.
``We've been seeing a weak U.S. market for more than a year now,'' Chief Executive Officer Dieter Scheiff said in a March 4 interview.
To contact the reporter on this story: Shobhana Chandra in Washington schandra1@bloomberg.net Last Updated: March 7, 2008 10:30 EST