US payrolls dip for first time since '03

The US unexpectedly lost jobs for the first time in more than four years, increasing the odds the economy will fall into a recession and making it likely the Federal Reserve will cut interest rates another half point next month.

Payrolls fell by 17,000 in January after an 82,000 gain in December that was larger than initially reported, the Labor Department said yesterday in Washington. None of the 80 economists surveyed by Bloomberg News predicted a decline.

Employment is one of the indicators, along with wages, production and sales, that help determine the start of economic contractions. The decline poses a further threat to consumer spending, which accounts for 70 per cent of the economy, after households were already hurt by falling home and stock values.

"It is highly unusual for payrolls to fall except in a recession," Christopher Low, chief economist at FTN Financial in New York, said in an interview. "The Fed will have to keep cutting rates and we can expect a cut at the next meeting in March.''

Fed Chairman Ben S Bernanke and his colleagues said on January 30 "risks to growth remain" after cutting the benchmark rate by a half-point, eight days after an emergency three-quarter- point move. Odds of another half-point cut, to 2.5 per cent, in March rose to 70 per cent from 68 per cent on late Thursday, according to April futures quoted on the Chicago Board of Trade.

Treasuries Rally
Treasuries, which fell earlier in the day, rose after the report, with 10-year yields dropping to 3.60 per cent at 5:13 pm in New York, from as high as 3.66 per cent. Stocks rose on Microsoft Corp $44.6 billion bid for Yahoo! Inc, with the Standard & Poor's 500 Index gaining 1.2 per cent, at 1,395.42.

A private report yesterday separately showed that manufacturing unexpectedly grew in January, showing business investment is holding up as other parts of the economy weaken. The Institute for Supply Management's index rose to 50.7, a five-month high, from 48.4 in December, the Tempe, Arizona-based group said.

Manufacturers, the state governments and construction companies lost jobs, yesterday's report showed.

"Employment fell across a broad assortment of industries," said Mark Vitner, senior economist at Wachovia Corp in Charlotte, North Carolina.

"It raises a number of red flags for the economy. There is no question economic growth has slowed to a crawl and the risks of recession are significant. That is why the Fed has cut interest rates so aggressively."

The jobless rate, which is based on a separate survey from the payrolls figures, declined to 4.9 per cent in January from 5 per cent the previous month.

Forecasts
The drop in payrolls in January was the first since August 2003. The median forecast was for a payrolls gain of 70,000, compared with an initially reported increase of 18,000 in December. Forecasts ranged from gains of 5,000 to 160,000.

Revisions for November and December brought total job gains for the two months to 142,000, versus a previously reported 133,000.

"Job growth has slowed quite a bit," Keith Hall, head of the Bureau of Labor Statistics, said at the congressional Joint Economic Committee hearing in Washington today. "It's a little early to talk about this being a real issue yet. We've had pauses like this before."

Hall added that he "shouldn't speculate" about whether the economy is headed into a recession.

Service industries, which include banks, insurance companies, restaurants and retailers, added 34,000 workers last month after an increase of 143,000 jobs in December. Retail payrolls rose 11,200 after a decline of 12,000 in December.

Factory Jobs
Factory payrolls dropped by 28,000 after falling 20,000 a month earlier. Economists had forecast a drop of 20,000 in manufacturing employment. Builders trimmed payrolls by 27,000 in January.

Government payrolls shrank by 18,000 during January, the first decline in six months, after rising 28,000 in December. "This time it was government jobs that pulled down the total," said David Resler, chief US economist at Nomura Securities International Inc in New York. The drop was led by a decrease in state education jobs, indicating less employment at schools.

Today's report showed the first decrease in the average work week since July, while hourly wages rose 0.2 per cent, less than the 0.3 per cent increase economists had forecast. Wages were up 3.7 per cent from a year earlier.

The deepest housing recession in a quarter century has dragged down home construction for the past two years.