us economy looking grim

Jobs Show Worse-Than-Expected Drop
Fri April 4, 2003 11:11 PM ET

By Caren Bohan
WASHINGTON (Reuters) - The U.S. economy suffered a worse-than-expected 108,000 decline in payrolls in March as the start of the war with Iraq and profit uncertainties took a toll on hiring.

But the unemployment rate stayed steady at 5.8 percent, defying expectations that it would creep higher. Also, the length of the private-sector workweek expanded.

Overall, the Labor Department's key employment report depicted a U.S. economy that is growing haltingly, if at all.

Still, the report was not as catastrophic as some in financial markets had feared and because of that, analysts backed off predictions the Federal Reserve might make an emergency interest-rate cut.

"Businesses have put off hiring and are still focusing on cost-cutting," said Mark Vitner of Wachovia Securities in Charlotte, North Carolina. Fed officials have linked the economy's recent woes to war concerns, which are making firms cautious. Vitner said the central bank might opt to postpone any rate cuts until they get a clearer picture of the outcome of the war and its effects on the economy.

On Wall Street, reaction to the jobs data was overridden by events in Iraq. Stocks rose early on hopes of a quick end to the war but fears of how fighting in Baghdad may play out over the weekend caused prices to turn mixed. Bond prices slipped.

The blue-chip Dow Jones industrial average rose about 37 points to close at 8,277. The technology-laced Nasdaq Composite Index fell about 13 points to 1,383.

INTER-MEETING FED CUT SEEN LESS LIKELY

Top Wall Street bond dealers trimmed the odds the Fed will cut rates before its next meeting on May 6, according to a Reuters survey.

Twelve of 21 primary dealers predicted the Fed would not cut rates in the next few months. But nine believe there will be a rate cut between now and the end of June.

Asked about the chance of a rate cut before the May 6 Fed meeting, dealers put the odds at 30 percent, down from 34 percent in the prior survey.

The March jobs drop was more than triple the 29,000 decrease projected by economists in a Reuters poll. The February data were revised to show a 357,000 job loss, more severe than the previously reported 308,000 decline.

"Two months in a row of sharp declines in employment either means we are in a recession or a pretty nasty pause in growth," said Kurt Karl, chief economist at Swiss Re in New York.

Administration officials cited the data as a reason for Congress to pass President Bush's proposed $726 billion tax-cut package.

However, opposition Democrats said the downbeat report was a sign that Bush's economic program was not working.

"In the two years that President Bush has been in office, his administration has lost an astounding 2.6 million private sector jobs, the worst record on job creation of any president in nearly 60 years," House of Representatives Democratic Leader Nancy Pelosi said in a statement.

Both the February payrolls report and the March report were affected by the call-up of military reserves to active duty for the war in Iraq. The call-up has exacerbated the decrease in the jobs series, which focuses on civilian employment.

The Department of Defense has said about 210,000 reservists have been called into active duty as of mid-March when the war began. But the Labor Department said it could not quantify the impact of the call-ups on the jobs data.

The largest portion of the call-up occurred in February.

Special factors were also at play in the unemployment rate, which is calculated from a survey of households. The payroll data is based on a poll of employers.

One reason the jobless rate managed to stay steady in March was that thousands of workers dropped out of the labor force and were therefore no longer counted as unemployed.

The number of "discouraged" workers -- those who wanted a job but gave up their search because of a lack of openings -- rose to 474,000 in March from 450,000 in February.

HIRING WEAKNESS WIDESPREAD

Hiring weakness cut across a variety of economic sectors. One category to show expansion was construction, where jobs rose by 21,000 in March. In addition, a booming industry for mortgage applications help fuel a 12,000 gain in the sector of finance, insurance and real estate.

Manufacturing jobs slumped by 36,000, while transportation payrolls dropped 13,000.

Travel and leisure has taken a harsh blow in the build-up to the Iraq war with airlines posting huge losses. Labor said on Friday that since January 2001, the airline transportation sector has lost 159,000 jobs.

Average hourly earnings rose by 0.1 percent in March to $15.10 following a 0.6 percent jump in February. The private-sector workweek increased slightly to 34.3 hours from 34.1 hours in February.

Within the manufacturing sector, the length of the workweek stayed steady at 40.8 hours but overtime hours fell to 4 hours from 4.1 hours.