INSTANT VIEW: U.S. sheds 17,000 jobs in January

NEW YORK (Reuters) - U.S. employers unexpectedly cut 17,000 non-farm jobs in January, the first time in nearly 4-1/2 years that U.S. payrolls shrank as fading construction and manufacturing sectors reflected the economy's waning momentum.

KEY POINTS: * The median forecast of economists polled by Reuters was for 80,000 new jobs in January and an unemployment rate unchanged at 5.0 percent. * The last time that jobs were cut was in August 2003 when 42,000 were lost. * The national unemployment rate eased to 4.9 percent from 5 percent in December but the number of people in the civilian labor force declined. * Manufacturers cut 28,000 jobs in January, a 19th straight month of contraction for the sector, while the number of construction jobs dropped by 27,000. * The average workweek fell to 33.7 hours in January from 33.8 in December, another sign of potential weakening in labor markets. * The private sector added 1,000 jobs in January but 18,000 government jobs were lost.

COMMENTS:

BORIS SCHLOSSBERG, SENIOR CURRENCY STRATEGIST, DAILYFX.COM, NEW YORK:

"It shows that the economy is at a virtual stand still. It is very negative from a long term perspective because clearly the Fed is going to have to continue cutting rates. That means the interest rate differential will continue to be in the euro's favor. There is a good possibility that we could run the euro all the way up to 1.50 and try to pass that level. The only thing that can help the dollar right now, ironically is the negative impact that this could have on the stock market.

"If the stock market reacts really negatively, this could create a little bit of carry trade unwinding and some positive dollar positions. But given the fact that we had the news of Microsoft today and given the fact that the stock market now almost certainly expects further rate cuts, I think overall the balance of the favor is to the euro's upside and we could see 1.50 before this is all over."

ROBERT MACINTOSH, CHIEF ECONOMIST, EATON VANCE CORP, BOSTON:

"The revisions are all over the place. I think the key here is the average weekly hours, it sort of cuts through all the fog. It was down a tenth of an hour. The economy is slow, I think that confirms all the other numbers when you add them up, that the economy is right on the cusp of a recession.

"It's pretty darn weak, but we're still in a growth mode. Not by much, we're not in a recession yet.

"(The market) is quite confused, it should be. Net-net, the stock market probably likes (the payrolls number) because it gives (Federal Reserve Chairman Ben) Bernanke more room to cut rates again."

HUGH JOHNSON, CHIEF INVESTMENT OFFICER OF JOHNSON ILLINGTON ADVISORS IN ALBANY, NEW YORK:

"The response of the financial markets has been subdued primarily because it is not a big surprise. The unemployment rate fell because there was a slight decline in the labor force. It's not a good sign, it means workers are being discouraged. This report is weaker than expected and when you dig into it is even more troubling. It suggests employment conditions are deteriorating even considering the upward revision in December. It certainly supports the Federal Reserve's aggressive moves toward less restraint."

TOM SOWANICK, CHIEF INVESTMENT OFFICER, CLEARBROOK FINANCIAL LLC, PRINCETON, NEW JERSEY:

"This was a horrible number. There was just a paralysis across the economy with a lot of uncertainty with respect to liquidity and the ability to finance. Everybody hunkered down and appears that what companies were doing was cleaning their balance sheet. These numbers will stabilize bonds and add to the downward pressure to the dollar. The payroll numbers also adds upward momentum to gold. This number does nothing for stocks because it is all about Yahoo! today. One last note, the best performing sector last month, January, was financials."

DAVID KELLY, CHIEF MARKET STRATEGIST, JPMORGAN FUNDS, NEW YORK:

"This is a weak report. We're not seeing a dramatic decline in jobs, and we did see an improvement in the unemployment rate, but we're still seeing major layoffs in construction and manufacturing. The economy is clearly in some difficulty here.

"The Fed has already reacted, preemptively cutting interest rates, with a view to a serious economic downturn. Indeed the federal government is preparing tax cuts with a view to a serious economic downturn.

"It is weak, but right now it looks like Washington is braced for an economic hurricane and so far all I see coming is a squall."

PIERRE ELLIS, SENIOR ECONOMIST, DECISION ECONOMICS, NEW

YORK:

"January is the new December in terms of the payroll numbers, showing an abrupt slowdown in private service sector jobs. This will keep the Fed on edge about the sustainability of employment and income growth. Perceptions of the likelihood of another easing will certainly be strengthened.

"Growth looks more precarious and meanwhile the wage picture looks less stressful than it did last month from the point of view of wage inflation."

"There's a powerful birth-death (of new businesses) adjustment which swung from adding 70,000 jobs in December to subtracting 378,000 in January. I'm sure that's a statistically optimal estimate but it's exerting an enormously powerful effect."

MARK VITNER, SENIOR ECONOMIST, WACHOVIA SECURITIES,

CHARLOTTE, NORTH CAROLINA:

"It is really surprising -- everything that we use to predict employment suggested that this number would be reasonably strong. The data in December and January is always a bit difficult to interpret but the uniform weakness here is kind of hard to dismiss.

It means what the Fed is doing is on target. Even though employment fell it doesn't mean that we are in recession. A decline of 17,000 jobs does not make the cut, but it is a big red flag."

NICK BENNENBROEK, HEAD CURRENCY STRATEGIST AT WELLS FARGO BANK IN NEW YORK:

"It's a disappointing number despite the dip in the unemployment rate. We are already seeing it weigh on the dollar a little bit, but since a drop was expected, I'm not sure the dollar will decline much further on the news today."

DAVID COARD, HEAD OF FIXED INCOME SALES AND TRADING, WILLIAMS CAPITAL GROUP, NEW YORK:

"The economy is in a softening trend. These numbers will probably keep the Fed on an accommodative track. This is bullish for Treasuries."

DANIEL NORTH, CHIEF ECONOMIST, EULER HERMES ACI, OWINGS MILL, MARYLAND:

"We are on the brink of a recession now. Actually, we may even be in recession. The job market is always a lagging indicator. This is a nail-in-coffin."

MARKET REACTION: - BONDS: U.S. Treasuries pare earlier losses. - CURRENCIES: The dollar fell sharply. - US STOCKS: U.S. equity index future lose big earlier gains and turn flat on the session. - RATE FUTURES: U.S. interest rate futures show about an 80 percent chance of a 50 basis point cut in the Federal Funds Target rate when the Federal Open Market Committee next meets in March.