In the clearest suggestion yet of a recession, U.S. nonfarm payrolls fell by 63,000 in February, the second straight decline, the Labor Department reported .“Turn out the lights the party’s over,” wrote Joseph Brusuelas, U.S. chief economist for IDEAglobal. “We are in a recession.”
It was the largest drop in payrolls since March 2003, when the economy was struggling through a jobless recovery.
The drop in payrolls was largely unexpected; economists were looking for a tepid gain of about 20,000 in the survey of business establishments.
U.S. stock markets opened lower after the report, while bonds rose.
Futures markets were pricing in an almost 100% chance of a three-quarters of a point cut in the federal funds target interest rate to 2.25%.
In addition to February’s dismal result, payrolls for December and January were revised down by 46,000.
The unemployment rate fell unexpectedly to 4.8% in February from 4.9%, but the decline didn’t reflect strength in the jobs market, but rather was due to a 450,000 decline in the labor force, the largest drop in nearly five years.
‘The data suggest that laid-off workers are discouraged and are giving up the job hunt for now,” wrote Stephen Gallagher, U.S. economist for Societe Generale.
Economists were expecting the jobless rate to climb to 5%.
According to the separate survey of households used to derive the jobless rate, employment fell by 255,000 in February. The labor participation rate fell to 65.9% from 66.1% in January. The employment rate fell to 62.7% from 62.9% and a peak of 63.4% in late 2006.
The job loss in January was revised to 22,000 from 17,000. In December, 41,000 net jobs were created, half the number estimated a month ago. Payrolls have declined by an average of 28,000 over the past three months, down from a gain of 80,000 or so a year ago.
Wage rise weak
Average hourly earnings rose 5 cents, or 0.3%, to $17.80 an hour. Average earnings have increased 3.7% over the past 12 months, less than the inflation rate.
Hiring was weak in most sectors in February. Private-sector payrolls fell by 101,000. Of 274 industries, 45.6% were adding jobs in February, the lowest percentage since August 2003. Of 84 manufacturing industries, 31% were hiring.
Manufacturing payrolls fell by 52,000, the most in five years. Construction jobs dropped by 39,000. Private services jobs dropped by 12,000, including 34,000 in retail, 12,000 in financial services, and 28,000 in temporary help services.
Job gains were restricted to government (up 38,000), health and education (up 30,000) and hospitality (up 21,000).
Total hours worked fell by 0.1%.
The weak report will likely add the chorus calling for the Federal Reserve to cut interest rates. The Federal Open Market Committee will meet on March 18, but speculation is growing that the FOMC could lower rates before then to address the extremely dysfunctional credit markets, where even AAA securities are being sold off to raise cash.
On Friday, the Fed announced steps to provide more liquidity to markets. The regular auction of short-term funds will be boosted by $40 billion, and the Fed said it would lend an additional $100 billion with agency mortgage-backed securities as collateral.
Economic Forecast and Calendar
|
| |
|
| Indicator |
Period |
Release
Date |
Previous |
Irwin Kellner’s Forecast |
Market-
Watch
survey |
The other
surveys |
Actual |
| ISM |
Feb. |
3/3
10am |
50.7% |
49.0% |
47.5% |
49.0% |
48.3% |
| Construction spending |
Jan. |
3/3
10am |
-1.3% |
-0.7% |
-0.7% |
-0.7% |
-1.7% |
| ADP employment |
Feb. |
3/5
8:30am |
119,000 |
25,000 |
N/A |
N/A |
-23,000 |
| Productivity |
4Q |
3/5
8:30am |
1.8% |
1.8% |
1.8% |
1.8% |
1.9% |
| Unit labor costs |
4Q |
3/5
8:30am |
2.1% |
2.1% |
2.4% |
2.1% |
2.6% |
| Factory orders |
Jan. |
3/5
10am |
2.0% |
-1.5% |
N/A |
-2.5% |
-2.5% |
| ISM services |
Feb. |
3/5
10am |
44.6% |
N/A |
47.9 |
48.0% |
49.3% |
| Nonfarm payrolls |
Feb. |
3/7
8:30am |
-22,000 |
35,000 |
20,000 |
30,000 |
-63,000 |
| Jobless rate |
Feb. |
3/7
8:30am |
4.9% |
5.1% |
5.0% |
5.0% |
4.8% |
| Average hourly earnings |
Feb. |
3/7
8:30am |
0.3% |
0.2% |
0.3% |
0.3% |
0.3% |
| Current quarter GDP |
1Q |
4/30
8:30am |
0.6% (4Q) |
-0.5% |
0.0% |
1.3% |
|
| GDP |
2Q |
7/31
8:30am |
0.6% (4Q) |
-1.0% |
0.7% |
1.9% |
|
| Federal Reserve Policy Forecast |
| Current policy |
After FOMC
meeting on |
Kellner’s forecast |
MarketWatch consensus |
Fed Funds:
3.00% |
| March 18 |
2.75% |
2.75% |
| April 30 |
2.50% |
2.50% |
| Aug. 5 |
2.50% |
2.50% |
Odds of change
from current policy |
| March 18 |
97% |
88% |
| April 30 |
98% |
91% |
| Aug. 5 |
99% |
97% |
