U.S. private sector loses jobs, service sector slumps

By Burton Frierson

NEW YORK (Reuters) - U.S. private companies hemorrhaged nearly 700,000 jobs in February and the service sector slump deepened as the year-old recession showed little sign of abating, according to data released on Wednesday.

The private sector cut 697,000 jobs compared with 614,000 in January, according to an ADP Employer Services report that suggested hefty employment declines are on the way in the government's more comprehensive payrolls data on Friday.

The service sector slump accelerated in February, the Institute for Supply Management said, and contributed heavily to job cuts among private companies even though it is often more recession-resistant than other areas of the economy.

"This is a slow 'U'-shape recession," said Kurt Karl, chief U.S. economist at reinsurer Swiss Re in New York. "We are still sinking. There is no sign of a bottom."

The U.S. economy has already lost more than 3.5 million jobs since the beginning of this recession, which is likely to extend through the first half of this year or longer and become the longest in the post-World War Two era.

Indeed, a Federal Reserve report said U.S. economic conditions worsened in January and February and that businesses do not expect improvement until late this year or early 2010.

Top officials for the Federal Reserve said the immediate outlook for U.S. growth was grim but forceful policy action will help end a recession that appears to be getting worse at the start of its second year.

"2008 was an annus horribilis -- a truly horrible year that only a sadist could look back upon with pleasure," said Dallas Federal Reserve Bank President Richard Fisher.

"We might call this the Godzilla economy -- it presents a monstrous challenge."

Economists expect Friday's payrolls report, which gives a more comprehensive picture of the labor market than ADP, to show the economy shed 648,000 jobs in February alone, which would be the biggest monthly decline since 1949.

The unemployment rate is expected to have risen to 7.9 percent in February, which would be its highest in 25 years, when the economy was just pulling out of the deep recession of the early 1980s.

Financial markets have grown accustomed to dreadful economic data, however, and stocks managed solid gains by the close of New York trade despite Wednesday's grim figures.

U.S. government bonds, which usually perform better during times of economic weakness, lost ground.

NONE ESCAPE THE SWORD

The service sector represents about 80 percent of U.S. economic activity and accounted for more than half of the total private-sector job losses reported by ADP, reflecting the rapid deterioration of the economy in recent months.