Recession fears rise on more job cuts

By Glenn Somerville

WASHINGTON (Reuters) - Employers unexpectedly cut jobs in February at the steepest rate in nearly five years, a second straight month of employment losses that heightened fears the world's largest economy has skidded into recession.

"The question appears no longer to be are we going into a recession but how long and deep it will be," said economist Joel Naroff of Naroff Economic Advisors Inc in Holland, Pennsylvania.

The Labor Department on Friday said 63,000 non-farm jobs were eliminated on top of an upwardly revised loss of 22,000 in January, sharply contrary to Wall Street economists' forecasts that 25,000 positions would be added in February.

The department also halved the number added in December to 41,000 from the 82,000 estimated a month ago, in a move that underlined the steady deterioration in the U.S. labor market.

"The underlying trends are horrible, with worse to come," said economist Ian Shepherdson of High Frequency Economics in Valhalla, New York. The Federal Reserve "has to ease (U.S. benchmark interest rates) much more," he said.

The U.S. central bank already has cut its federal funds target rate by 2.25 percentage points since September to its current 3 percent level and is widely expected to slash it again at its next policy-setting session on March 18.

A Reuters poll on Friday found that most major Wall Street dealers expect the fed funds rate to be at 2 percent and possibly lower by the end of April.

STOCK PRICES SUFFER

Stock prices dropped on the unfavorable jobs report, with the Dow Jones industrial average down 146.70 points at the close to 11,893.69. The Nasdaq Composite Index was off 8.01 points to end at 2,212.49.

U.S. Treasury debt prices were mixed. The benchmark 10-year note rose 10/32 in price for a yield of 3.56 percent, down from 3.59 percent late Thursday.

Just before the employment report's release, the Fed said it was increasing the size of special auctions it conducts twice a month to add funds, or liquidity, into highly stressed capital markets. That should make it easier for businesses to borrow money needed to expand and to boost hiring.

President George W. Bush acknowledged an economic slowdown has begun but said his administration deserved credit for administering a "booster shot" in the form of a $152 billion economic stimulus program that should kick in by summer.

"We believe that the steps we've taken, together with the actions taken by the Federal Reserve, will have a positive effect on our economy," Bush said. Until now, the White House has maintained the economy was not at risk of recession and still resists questions whether a contraction is under way.

"Recessions are things that are declared by other people," White House Economic Adviser Edward Lazear said, though he conceded the Bush administration has "definitely downgraded" its forecast for first-quarter economic performance.

The jobs report is one of the first gauges of overall U.S. economic activity each month, and so the bleak February report sent a shock through the global financial sector.