US employers cut 4,000 jobs in August, the first time in four years that monthly hiring contracted, the government said on Friday in a report certain to boost pressure on Federal Reserve policy makers to cut interest rates.
The surprisingly bleak August jobs report was sharply contrary to expectations that hiring would keep rising and comes even before the worst of the credit-market turmoil has begun to have an impact on the economy. Many financial services firms hit by subprime mortgage problems already have begun to announce layoffs. The last time the economy shed jobs was in August 2003, when 42,000 non-farm jobs were cut.
In addition to the August job losses, the Labour Department revised down its estimates for hiring in June and July by a total of 81,000. It said 68,000 jobs were added in July rather than 92,000 and 69,000 in June instead of 126,000.
"It's dreadful, and not only the current number but the revisions," said Michael Metz, chief investment strategist for Oppenheimer & Co. "It shows the so-called support for the economy from rising employment is rapidly eroding and to me it seems almost inevitable we are heading for recession." Despite the job losses in August, the unemployment rate that is compiled from a separate survey was unchanged from July at 4.6 percent. It has held in a range from 4.4 percent to 4.6 percent since last September.
The Federal Reserve's policy-making Federal Open Market Committee is scheduled to meet on September 18, but the bad jobs report is likely to heighten speculation it could lower interest rates even before then. "Everything in this number looks bad and we know things got worse. Fed has to act," said Andrew Brenner, market analyst for MF Global in New York.
Stock futures prices plunged after the weak jobs data was issued and the dollar's value dropped against other major currencies on the evidence that a US housing slump and credit problems might be damaging the broader economy. Bond prices jumped as investors shifted funds to safer havens from stocks.
Economists polled a week ago by Reuters had forecast 110,000 jobs would be created in August, but many analysts had scaled back their expectations since then amid increasing signs the job market was coming under strain.
There is still considerable uncertainty how the turmoil in credit markets that set in at mid-August will affect the overall economy, though Treasury Secretary Henry Paulson acknowledged on Thursday night in a television interview that he expected that growth would pay a "penalty" because of the financial market disruptions.
Job losses in August were concentrated in the goods-producing sector. A whopping 46,000 manufacturing jobs were cut, the most since an 86,000-job cut in July 2003. Construction businesses shed another 22,000 jobs, up from 14,000 that were lost in July. Service industries added 60,000 jobs in August.
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