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The Nation

Steep Job Losses Jolt Hopes for Recovery

March 08, 2003|Peter G. Gosselin | Times Staff Writer

WASHINGTON — U.S. payrolls unexpectedly plunged last month by 308,000 jobs, the most since the immediate aftermath of the 2001 terrorist attacks, the Bureau of Labor Statistics said Friday. The unemployment rate crept up to 5.8%.

The job loss was so much greater than anybody had predicted that economists were left scrambling for an explanation. Among the most widely cited: The call-up of reservists for a possible war with Iraq shrank payrolls, and winter storms kept businesses that normally hire at this time of year from doing so.

But neither explanation could mask the underlying message of the new numbers: The nation's economy, rattled by war threats and still haunted by the tech and stock market busts, is reeling.

"This is really bad," said Bill Cheney, chief economist with John Hancock Financial Services Inc. in Boston. "Job losses were so widespread that I'm hard-pressed to find any silver lining in this report."

Analysts said the most immediate effect of the new figures would be to push the Federal Reserve toward more interest rate cuts.

The central bank's policymaking Federal Open Market Committee, which is set to meet March 18, currently holds a "neutral bias," which means it is not disposed to raise or lower rates, after slashing its signal-sending federal funds rate 11 times to a four-decade low of 1.25%.

Fed Chairman Alan Greenspan has said repeatedly in recent months that he wants to wait to act until the clouds of war in Iraq dissipate, presumably with a swift U.S. victory.

But analysts said Greenspan would come under mounting pressure to make more rate cuts if it appears that consumers worried about jobs are starting to slow their spending.

"This is making for a very uncomfortable situation for the Fed, and it could make for a very cantankerous FOMC meeting," said Goldman Sachs senior economist Edward McElvey.

Merrill Lynch & Co. predicted that the Fed would cut the funds rate by a quarter-point to 1%, its lowest level since July 1958.

The new jobs numbers immediately were dragooned into Washington's political and policy battles. Treasury Secretary John W. Snow declared that the weak showing "underscores the importance of swiftly enacting President Bush's jobs and growth package."

Senate Minority Leader Tom Daschle (D-S.D.) shot back that Bush had turned the economy into a "job-destroying machine" and "simply does not know what it takes to get our economy moving again."

Stocks fell on news of the job losses but rose late in the day on reports, later disputed, that the U.S. was zeroing in on Al Qaeda leader Osama bin Laden. The Dow Jones industrial average ended the day up 66.04 points, or 0.9%, at 7,740.03.

Analysts said the new job losses were particularly disturbing because they extended to the service sector, which usually remains buoyant even in downturns. Service sector payrolls fell by 204,000 last month, according to the BLS. That was the biggest loss since November 2001, right after the terrorist attacks on New York and Washington, and reversed a 166,000-job gain in January.

Within services, employment in the temporary-help and data-processing industries barely budged last month. Employment jumps in the two industries are considered a harbinger of recovery, and analysts said the failure of either to boost payrolls was troubling. The health services sector, which had been adding an average 21,000 jobs a month, also was flat in February.

Construction employment dropped by 48,000 in February, after rising by 26,000 in January. Retailers cut payrolls by 92,000, while other service employers such as restaurants and janitorial firms cut 86,000.

Meanwhile, the manufacturing sector continued its long, painful slide, cutting an additional 53,000 jobs in February and posting its 31st straight month of losses.

Although the February unemployment rate rose only one-tenth of a point from January's 5.7% rate, that still means the jobless measure is nearing an eight-year high, and there were plenty of signs of economic pain in the new numbers.

The average length of an unemployment stint rose to 18.6 weeks, a 10-year high. About 22.1% of the nation's 8.45 million unemployed have been out of work for more than six months, another decade high.

Economists say long-term unemployment is especially damaging because it drains households' savings and di- minishes workers' chances of landing comparable-quality work.

One bright spot for those who are working: Average hourly earnings of production and nonsupervisory workers, who make up more than 80% of the labor force, rose 11 cents, or 0.7%, to $15.08 in February after falling a penny in January. But the increase was partially offset by a 0.2-hour drop in the average workweek, the BLS said.

Analysts said part of the drop in the employment total may be because of the Defense Department's call-up of 176,500 military reservists. But those call-ups have been spread over many months and don't explain the sharp decline in February. Washington has instructed companies to exclude workers called to active duty from their payrolls because they no longer are in the civilian labor force.

Part of the falloff in the average workweek may be due to the worst snowstorm in seven years in the Northeast. But even economic optimists conceded that such one-time factors cannot account for the full dimensions of the February jobs setback.

"We have a lot of people who are unemployed and unemployed long term," said Bank One Corp. chief economist Diane C. Swonk. "There's no way around it; this is a jobless recovery."

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