WASHINGTON (Reuters) - U.S. employers cut payrolls for the first time in 4-1/2 years in January, the Labor Department said on Friday in a report that showed the slowing economy was at growing risk of sliding into recession.
A separate report showing a modest revival in manufacturing at the beginning of 2008 took some sting out of the jobs loss but financial market participants were betting the Federal Reserve will have to keep cutting interest rates.
A series of contrasting reports whipsawed financial markets, leaving stock prices basically unchanged in early afternoon trading and bond prices mixed. The dollar recovered earlier losses to show modest gains against the euro.
Uncertainty about U.S. economic prospects was widespread.
“The economy is very weak. It’s on the edge of recession but the data are mixed enough so that you can’t say a recession has begun,” said Stuart Hoffman, chief economist for PNC Financial Services in Pittsburgh. “It’s hanging by a thread but it hasn’t been cut yet.”
President George W. Bush acknowledged to a Kansas City, Missouri, audience there were “troubling signs, serious signs that the economy is weakening” and said Congress should speed up work on fiscal measures to get tax rebates to consumers.
Some 17,000 jobs were cut last month, sharply contrary to Wall Street analysts’ forecasts that 80,000 would be created. December’s new-job total was revised up to 82,000 from 18,000 but October and November gains were revised lower.
At midmorning, the Institute for Supply Management said its index of national factory activity rose to 50.7 in January from 48.4 in December, a sign of expansion. Consumer sentiment also rose, according to a Reuters/University of Michigan Survey, though not as much as had been forecast.
The soft jobs numbers convinced some analysts that the economy already was in deep trouble.
“We are on the brink of a recession now,” said Daniel North, chief economist for Euler Hermes ACI in Owings Mill, Maryland. “The job market is always a lagging indicator. This is a nail-in-the-coffin.”
The national unemployment rate eased to 4.9 percent from 5 percent in December. The unemployment rate is calculated using a separate survey than the one the department uses for measuring the number of payroll jobs each month.
The Fed cut interest rates again this week in a bid to spur the economy and the Bush administration and Congress are wrangling over the fiscal stimulus plan. But analysts said more policy action may be necessary to try to avert a stall.
Boris Schlossberg, chief currency strategist for DailyFX.com in New York, said the jobs total “shows that the economy is at a virtual standstill.”
“It is very negative from a long-term perspective because clearly the Fed is going to have to continue cutting rates,” Schlossberg added. Lower U.S. interest rates could put further downward pressure on the dollar’s value.
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 Labor Department said construction industries have shed 284,000 jobs since employment peaked in September 2006, largely reflecting the continuing decline in home building.
A separate report from the Commerce Department showed, not surprisingly, that construction spending dropped 1.1 percent in December, partly because of a fall-off in home construction. Sales, construction and prices of both new and previously owned homes are in sharp decline with no early end in sight.
The job report showed that after holding steady for six months, the average workweek fell to 33.7 hours in January from 33.8 in December, another sign of weakening in labor markets.
The private sector added 1,000 jobs in January but 18,000 government jobs were lost.
Editing by Neil Stempleman