Washington: Employers in the US cut the most workers in five years last month, raising concern that the economic contraction is deepening and adding to the case for the Federal Reserve to keep lowering interest rates.
Payrolls shrank by 80,000, more than forecast and the third monthly decline, the labour department said in Washington on Friday. The jobless rate rose to 5.1%, the highest level since September 2005, from 4.8%.
“This is the final blow,” said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd in New York. “It’s clear the US economy is in a recession. That’s going to shake the confidence of investors and companies across the world and cause people to curtail spending in other countries.”
Traders raised bets the Fed will cut its benchmark rate half a point this month after central bankers already enacted the deepest reductions in borrowing costs in two decades last quarter. Officials signaled increasing concern about the economy and credit markets this week, with chairman Ben Bernanke saying for the first time the US may enter a recession.
Treasuries climbed, with 10-year note yields falling to 3.49% at 10:34am in New York, from 3.59% late on Thursday. Odds of a half-point rate cut at the Fed’s 29-30 April meeting rose to 40% from 20% on Thursday, futures show. Stocks dropped.
The loss of jobs in February was revised to 76,000 from 63,000. Economists had projected payrolls would fall by 50,000 in March, according to the median of 79 forecasts in a Bloomberg News survey. Economists’ forecasts ranged from a decline of 150,000 to a gain of 65,000.
“If you’re ever going to ring a bell on a recession, these numbers do it,” Stuart Hoffman, chief economist at PNC Financial Services in Pittsburgh said in a Bloomberg Television interview. “You have had job losses all year.”
The job figures come a week before Bernanke and treasury secretary Henry Paulson meet their counterparts from the Group of seven major industrial nations alongside the spring meetings of the International Monetary Fund (IMF) in Washington.
IMF chief economist Simon Johnson said on Thursday in a statement that the US economy has slowed to a “virtual standstill,” hurting global growth prospects.
Gains in government jobs prevented a deeper drop in payrolls last month as private employers cut 98,000 workers, the fourth straight monthly decline. Revisions subtracted 67,000 jobs from the originally reported total figures for January and February. The last time the economy lost jobs for at least three months coincided with the start of the Iraq War in 2003. The jobless rate was forecast to rise to 5% from 4.8% in February, the Bloomberg survey said.
Factory payrolls shrank by 48,000 workers, the biggest decrease since July 2003, the labour department said. The drop included a loss of 24,000 jobs in the auto manufacturing and parts industries, which the government said “largely” reflected the effects of a strike at a supplier for General Motors Corp. Economists had forecast a decline of 35,000 in manufacturing jobs.