Grim jobs numbers heighten recession fear

WASHINGTON — Employment slowed to its weakest growth in more than four years and the unemployment rate shot up to a higher-than-expected 5 percent, the Labor Department reported Friday.

Amid growing fears of a recession, the report sent stocks skidding and foreshadowed further interest-rate cuts by the Federal Reserve and perhaps an economic stimulus package from the nation's capital.

Job growth had been a bright spot in an economy buffeted by turmoil in credit markets, sky-high energy prices and the deepest housing slump since the Depression. Now, many mainstream economists put the odds of recession this year at 50-50 because weak employment hurts consumer spending, which drives about two-thirds of the U.S. economy.

"With both the magnitude and breadth of job growth slowing, we expect personal-income growth to slow and with it consumer spending," John Silvia, chief economist for Wachovia, a Charlotte, N.C.-based national bank, said in a note to investors. "No recession yet, but we are certainly on thin ice."

The unemployment rate in December shot up three-tenths of a percent to 5 percent, the highest since November 2005, and non-farm payroll employment grew by just 18,000 jobs, the lowest level since August 2003, when job growth was negative.

"This economy of ours is on a solid foundation, but we can't take economic growth for granted," President Bush said Friday after meeting with his working group on financial markets. Bush is considering an economic-stimulus package if recession risks grow.

Surprised by the weak employment numbers, stocks tumbled on Wall Street. The Dow Jones Industrial Average plunged 256.54 points Friday to close at 12,800.18. The S&P 500 was off 35.53 points to 1,411.63 and the tech-heavy NASDAQ was down 98.03 points to 2504.65.

Tepid job growth increases the likelihood that the Federal Reserve will lower its benchmark federal funds rate when it meets Jan. 29-30, if not earlier. It's lowered rates by a full percentage point in three cuts since September in a bid to make borrowing cheaper for consumers and businesses.

The Fed announced Friday that it would increase its two planned auctions this month of short-term, low-interest loans to big banks to $30 billion each in a continuing effort to make more money available to big banks for lending that would stimulate economic activity.

Friday's grim job numbers came against the backdrop of presidential elections and heightened political debate over a stimulus package to prevent or minimize a recession. Larry Summers, a Clinton-era treasury secretary, called in December for a fiscal stimulus package of temporary tax cuts worth up to $75 billion, and President Bush confirmed Thursday that he's considering various measures. Such a package, however, would increase the federal budget deficit, at least in the short term.

"A tax cut or spending increase is only good stimulus if it results in most of the money . . . being quickly spent in the economy so there is more demand for goods and services, and so that businesses need more workers, not laying them off," said Robert Greenstein, the executive director of the liberal Center on Budget and Policy Priorities, an economic research center.

Lawmakers and the president should prepare an emergency plan of temporary tax rebates for the cash-strapped middle class that would take effect only amid clearer signs of recession, the center will argue in a report to be released Tuesday.

For the moment, there's scant detail on stimulus plans and plenty of political posturing.

Campaigning in New Hampshire, Sen. Hillary Clinton, D-N.Y., said: "We are just at the beginning of a tough economic year."

Senate Majority Leader Harry Reid, D-Nev., said in a statement that on "the heels of record oil prices and a devastating housing crisis, today's news that unemployment has hit a two-year high of 5 percent is just the latest casualty of the Bush administration's failed economic policies."

White House spokesman Tony Fratto countered that the president's economic advisers were forecasting an unemployment rate of 4.9 percent, so there was little surprise.

"It's in a range that I think we would say is predictable for what the economy is dealing with now," said Fratto, pointing to a deep housing slump, oil prices flirting with $100 a barrel and credit markets in turmoil. "There are obvious headwinds out there. We have an economy that has a dynamism that can deal with these things."

A CLOSER LOOK AT THE NUMBERS

• The biggest gainers in payroll jobs were the professional and technical services, up by 33,000 posts in December and 322,000 in 2007. The health-care sector expanded by 28,000 jobs in December and 381,000 for the year. The food-services industry grew by 27,000 jobs in December and 304,000 for 2007.
• Construction employment tumbled by 49,000 in December and 236,000 jobs since its peak in September 2006, about the time the bottom began falling out of the housing market.
• Manufacturing jobs were down by 31,000 in December and 212,000 for 2007, led by automakers and parts manufacturers, who cut 74,000 jobs last year.
• The financial sector, which is in the throes of a credit crisis, and the information sector, where a writer's strike has hampered the motion picture and broadcast industries, also showed losses. The finance sector has shed 79,000 jobs since its peak last February. The information sector lost 13,000 jobs in December.
• The latest report confirms the importance of education. The unemployment rate for college-educated Americans is 2.2 percent, and 7.6 percent for those without high school diplomas. For high-school grads with no college, the jobless rate in December was 4.7 percent.
• Multiple-job holders account for 5.2 percent of the work force, down from 5.4 percent in December 2006.

ON THE WEB

The Labor Department's December jobs report.