U.S. employers trimmed their payrolls in January for the first time since 2003, the Labor Department said Friday in a disappointingly weak report that helped fuel fears that the nation’s economy is making the transition from a slowdown to a full-blown recession.
Experts had been expecting the report to show that 60,000 to 70,000 new jobs were created last month, and some forecasters thought the number could top 100,000. But instead, after a string of 52 consecutive months in which payrolls increased, January employment declined by 17,000.
The unemployment rate, which is derived from a separate household survey, slipped to 4.9 percent from 5.0 percent in December because more people, perhaps discouraged by their prospects, stopped looking for work.
Although not definitive, the January jobs report “could mean that the economy is entering into or is already in recession,” said economist Sophia Koropeckyi of Moody’s Economy.com.
The decline, echoed BMO Capital Markets economist Michael Gregory, “suggests that gross domestic product contracted last month, likely marking the start of recession.”
Friday’s employment report differed from those of recent months because it offered new evidence that the housing sector’s lengthy swoon is now seeping out to sap the broad economy.
Employment in the construction sector has been falling for more than a year, and more recently employment has been dropping at companies that manufacture housing-related goods such as appliances, building products and carpets.
January’s data suggest the contagion is spreading to take a toll on the service sector, which until recently had remained fairly robust.
“The next leg of the slowdown is being led by the consumer,” said Merrill Lynch economist David Rosenberg.
Manufacturers shed a net 28,000 jobs in January, the Labor Department said, adding more misery to a sector that lost a painful 269,000 jobs over the last 12 months.
Construction employment decreased by 27,000 in January, and the once white-hot segment has now lost 284,000 jobs since peaking in September 2006.
In the service sector, health-care employment continued to move upward in January, but the growth in food-services and retail employment slowed.
The private sector actually eked out a gain of 1,000 jobs in January, but an unexpected decline of 18,000 jobs in federal, state and local governments pushed the month to a negative 17,000.
Some observers cautioned against reading too much into Friday’s report, noting that the data might have been affected by once-a-year adjustments the government makes to certain statistical assumptions it uses in calculating employment.
“This was a disappointing report, but we shouldn’t overreact to it,” said Joel Naroff, head of Naroff Economic Advisors.
Although it provides “a warning that the labor market and the economy aren’t in good shape,” he said, for now “it isn’t clear we will continue getting negative jobs numbers” in the months ahead.
Others noted that preliminary figures for recent months, like those released Friday, have seen dramatic revisions. For example, the scant 18,000 new jobs that the government originally reported for December, which gave Wall Street a bad case of the jitters when released, were adjusted significantly upward Friday, to 82,000.
Experts debated whether the latest report was dreadful or just pretty bad, but most agreed that the weak data give support for quick action on the economic stimulus package Congress is considering, as well as for further interest-rate cuts by the Federal Reserve.
The soft labor market will help defuse inflation concerns, making it easier for the Fed to cut rates again, according to Merrill’s Rosenberg, who said such a move is likely because Friday’s report “has recession thumbprints all over it.”
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jpmiller@tribune.com
