WASHINGTON — With the government reporting the third straight month of job losses Friday and wages lagging behind inflation, the problems that originally centered on housing and financial markets now appear to have spread through almost every segment of the economy.
The unemployment rate hit 5.1% in March, up from 4.8% in February and the highest level since the wholesale job losses that followed Hurricane Katrina in September 2005. Employers reported that nonfarm payrolls shrank by 80,000 jobs, the sharpest drop in five years.
The combination of contracting payrolls and stagnating wages -- on top of falling home values and tighter credit -- makes an economic downturn almost certain, economists said, because consumer spending accounts for 70% of the nation's gross domestic product. It also raises the possibility that recovery could be slow and difficult.
"With the consumer's only source of support for spending coming from job-related income growth, a rapidly weakening labor market is the worst possible news for the economy," Joshua Shapiro, chief U.S. economist for MFR Inc. in New York, wrote in an e-mail to the forecasting firm's clients.
"Until government checks start flowing sometime in May, the consumer is going to be a major handicap for the economy," he said, referring to rebates the government will issue to most taxpayers as part of an economic stimulus plan.
The scope of the job losses in March was more disturbing than the size of the decline, some said. Among the sectors hit were factories, construction companies, retailers, banks, real estate firms, mortgage brokers, hotels, airlines and architecture and engineering companies.
"It was a broad-based decline. It wasn't just housing and Wall Street. The problems in the housing market have now affected the rest of the economy," said Mark Zandi, chief economist for Moody's Economy.com.
Last month's losses followed declines of 76,000 jobs in both January and February for a total contraction of 232,000 jobs over three months.
Meanwhile, average hourly earnings rose 3.6% and monthly earnings 3.3% in the previous 12 months. Neither kept pace with the 4% consumer inflation rate.
All together, the Labor Department said, 914,000 workers have lost jobs in the last 12 months and 7.8 million are out of work. Just to keep pace with the normal rate of population growth, the economy needs to create more than 100,000 jobs a month, economists say.
