4-year growth in U.S. jobs ends; stocks tumble
Employers eliminated 4,000 jobs in August, the Labor Department said Friday, bringing an end to four years of uninterrupted job growth.
Economists said the report provides the Federal Reserve with ample justification to lower interest rates at least a quarter point when it meets Sept. 18. But the numbers also raised fresh fears of a recession and suggested that the damage from the recent turmoil in financial markets could be spreading.
At the opening bell on the New York Stock Exchange, stocks dropped. The Dow Jones industrial average initially lost about 150 points in the first three minutes of trading, and those losses deepened later in the morning session.
At 11 a.m., the Dow was off about 200 points, or 1.5 percent. The Standard Poors 500-stock index and the Nasdaq composite index were down slightly more.
The effect on European markets was even sharper. Stocks on the Paris and Frankfurt exchanges, down only slightly before the announcement, were off 1.7 percent within the next hour and a half.
If the jobs report had been merely lackluster, it might have been welcomed by investors as a sign that fears of inflation had abated sufficiently to make the prospect of a Fed rate cut all but certain. The reversal in job growth, however, went beyond expectations, raising fears that corporate profits will weaken as the market upheaval moves beyond the housing and financial sectors and casts a chill on the broader economy.
“That it was down 4,000 really is eye-catching,” said John Shin, an economist for Lehman Brothers. “What the payroll number confirms is that you may be seeing the damage spread across the rest of the economy.”
Not only did the report show that there was no job growth last month, but it also found that the job market was significantly weaker in June and July than the government first reported. Revisions to earlier jobs reports showed that 81,000 fewer jobs were created than initially estimated.
Construction and manufacturing were the hardest-hit industries, losing a combined 68,000 jobs. That offset hiring in education, health and retail. About 28,000 government positions were eliminated as well.
The national unemployment rate, taken from a separate survey of American households, was unchanged at 4.6 percent.
Wage growth was on par with July. Average hourly earnings for most American workers increased 3.9 percent since August 2006, to $17.50, the same annual rate as the month before.
Wall Street had eagerly awaited the jobs report because it is the most significant economic data released since financial markets began to tumble in early August. The surveys that make up the Labor Departments August employment report measured conditions from Aug. 12 to Aug. 18, when the credit squeeze and subsequent stock market turmoil began unfolding in force.
The biggest question for the Federal Reserve since the market troubles began snowballing has been what the impact would be on the economy as a whole. Economic data like the monthly employment report will help the Fed determine what action it should take.
“One number is not a trend, but this will scare the Fed,” said Ian Shepherdson, chief United States economist with High Frequency Economics, in a research note Friday.
Investors and economists are widely expecting the Fed to lower interest rates by a quarter-point, to 5 percent, at its next meeting. Some are expecting more than one interest rate cut before the end of the year. Some economists said the August employment report raises the chances of a second rate cut this year.
