Economy Bleeds Jobs, Rate Cuts Seen
Friday December 7, 3:40 pm Eastern Time
By Glenn Somerville
WASHINGTON (Reuters) - The U.S. economy shed jobs at a searing pace for a second straight month in November, the government said on Friday in a report that analysts said almost assured further interest-rate cuts to try to combat recession.
The economy lost 331,000 nonfarm jobs last month, the Labor Department said, far worse than the 189,000 that Wall Street economists had anticipated.
November's losses came on top of a revised 468,000-jobs payroll plunge in October -- a total 799,000 jobs scrubbed from payrolls in a two-month period. The last time job markets suffered a similarly devastating back-to-back blow was in May and June 1980 when 806,000 jobs were lost.
Previously, the department had said 415,000 jobs were shed in October, but it revised that up.
The unemployment rate climbed to 5.7 percent in November from 5.4 percent in October, reaching its highest level since a matching 5.7 percent in August 1995.
The shocking report comes just days before Federal Reserve policymakers meet to consider interest-rate strategy.
The Fed has reduced rates 10 times already this year and analysts said the bleak figures made an 11th reduction at the meeting on Tuesday a virtual certainty, with the only question being its size.
The U.S. central bank's federal funds rate already is at a 40-year low of 2 percent.
MARKETS CAUGHT BY SURPRISE
``We were set up for strength, but we got weakness. The details are not pretty,'' said economist Christopher Low of First Tennessee Capital Markets in New York.
``I think this is going to make the market think about leaning toward a (half-percentage) point cut. It definitely takes no cut off the table,'' he said.
Before the report many economists had been expecting the Fed to trim rates by a modest quarter-point.
President Bush said he found the jobs report ``troubling'' and said it underlined the need for Congress to speed approval of a fresh package of economic stimulus measures to try to give the economy a lift.
But with partisan bickering between Republicans and Democrats growing about how to structure a stimulus package, House and Senate talks were put off indefinitely on Friday as the future of any fresh measures became murky.
Labor Secretary Elaine Chao also called for the Senate to act on the White House's proposed measures, saying that with the attacks on Sept. 11 ``the bin Laden economy began'' and that it will take stimulus to get the economy back to recovery.
The United States has identified Osama bin Laden as the key influence behind the airplane attacks that wiped out the World Trade Center in New York and damaged the Pentagon.
Bond prices surged after the jobless data was issued, but later reversed course when a University of Michigan consumer confidence survey showed a sharp bounce in optimism in early December. Some bond investors appeared to be taking profits after a lengthy rally in prices for government debt.
CONSUMERS STILL BUOYANT
The consumer sentiment index gained for a third month in a row, to 85.8 in early December from 83.9 in November, buoyed by higher stock prices and hopes for economic recovery that evidently outweighed worry about job layoffs.
Stock prices sank in the wake of the report, though not dramatically, on the apparent belief that recovery may be delayed but not derailed by dimming job prospects.
The jobs report initially pushed the dollar's value down, but it climbed back as investors decided more Fed rate cuts would help the world's largest economy emerge from recession relatively soon.
Economist Joel Naroff, of Naroff Economic Advisors in Holland, Pa., said the Fed should not be deterred from cutting rates simply because they already were at a low level since the key thing was to get the economy's engine fired up.
``There is no reason to leave the bullets in the gun, so a 50 basis point (half percentage point) move looks to be the best bet when the FOMC convenes next Tuesday,'' Naroff said.
In response to a question, Chao said she anticipated an economic pickup and brighter job prospects ``some time around the end of the first quarter -- March or April'' of next year.
Not all analysts agreed that a short and shallow downturn was in prospect.
``Some people have begun to say the recession is diminishing in force and I think those conclusions are premature,'' said economist Carol Stone, of Nomura Securities International Inc., in New York.
Service-producing industries that were the engine of the job boom during the record 10-year expansion that ended in March cut jobs for a third straight month in November, letting go 164,000 workers after a huge job loss of 327,000 in October. The hemorrhaging of factory-sector jobs worsened in November as another 163,000 jobs were cut on top of 124,000 in October. |
