Job losses mount, recession feared
WASHINGTON (Reuters) - Employers cut payrolls in March for a third straight month and the jobless rate jumped to a 2-1/2-year high, further evidence that a housing downturn and credit crisis may have pushed the economy into recession.
The Labor Department on Friday said nonfarm employment fell by 80,000 jobs in March, more than expected and the biggest drop in five years. Financial markets saw this as reinforcing the need for further Federal Reserve interest rate cuts.
It was the first time the U.S. economy had shed jobs for three consecutive months since a five-month string in 2003, when the economy was mired in a recovery from the 2001 recession which created few jobs.
"The odds that it will turn out that a recession started in the early part of this year have certainly been rising," said Harvard professor Jeffrey Frankel, a member of the private-sector panel that dates U.S. recessions.
While members of the National Bureau of Economic Research's Business Cycle Dating Committee have been in communication, the panel has yet to call a recession.
"No sign that a recession has begun yet," said Northwestern University professor Robert Gordon, a member of that panel.
Adding to the bleak picture, the Labor Department said a total of 152,000 jobs were lost in January and February, sharply above the prior estimate of 85,000, and the jobless rate jumped to 5.1 percent from 4.8, the highest since September 2005.
Most economists, having seen a third monthly decline, were now convinced that the economy is in recession.
"There doesn't appear to be any silver lining. It shows that we're right in the middle of a recession," said Carl Lantz, U.S. interest rate strategist at Credit Suisse in New York. "Our expectation is that it will be a longer recession than the last two, and we're just in the beginning."
U.S. stock markets closed down slightly while prices for U.S. government securities rallied.
"What we have been looking at over the first quarter is an economy that has entered into recession," JPMorgan chief economist Bruce Kasman told clients on a conference call.
The White House said it was "not happy" with the jobs report, saying it expected economic growth to be flat in the first quarter but pick up later in the year.
The numbers drew calls from Democratic presidential hopefuls Hillary Clinton and Barack Obama for aid to families facing foreclosure on their homes, while Republican candidate Senator John McCain said tax cuts and streamlining burdensome regulations were needed to foster growth.
One bright spot in the dreary labor report was that average weekly hours increased slightly. Economists were expecting workers' hours to remain flat or decrease slightly.
"This should cushion the negative impact on income growth of the job losses," said economist Joel Naroff, of Naroff Economic Advisors in Holland, Pennsylvania.
Job losses seen over the quarter are nowhere near the triple-digit hemorrhaging seen in prior recessions, leading economists to think this downturn may be short and shallow.
"We do think the economy is in recession. That said, I would say that these numbers do not show a deep recession at this point. They don't even show an average recession," said James O'Sullivan, economist at UBS in Stamford, Connecticut.
The Federal Reserve, the U.S. central bank, has already slashed benchmark overnight rates by 3 percentage points since mid-September to prop up an economy hit hard by a liquidity crisis brought on by what many economists see as the worst housing slump since the Great Depression.
Fed Chairman Ben Bernanke admitted to Congress this week a recession was possible. "It's clearly a period of very slow growth extending back to the fourth quarter of last year, and we are trying to set our policies appropriately for that situation," he added.
A New York Times/CBS News poll released on Friday showed the economy's deepening woes were weighing heavily on the minds of Americans. Of those polled, 81 percent said they believed things were "pretty seriously" on the wrong track, up from 69 percent a year ago and 35 percent in early 2002.
During the first quarter, job losses averaged 77,000 a month, compared with average monthly gains of 76,000 in the last half of 2007.
In March, the biggest losses were in construction and manufacturing, areas bearing the brunt of the slowdown.
Factory employment fell by 48,000, the biggest decline since July 2003, exacerbated by a 24,000 fall in auto manufacturing jobs that the department said likely reflected the impact of a strike at an auto parts maker.
Construction employment fell 51,000, the ninth consecutive month of job losses.
In another sign firms are bracing for a downturn, professional business employment dropped by 35,000, mostly in temporary help services.
(Additional reporting by Burton Frierson in New York; Editing by James Dalgleish)