The United States shed 651,000 jobs in February and sharply revised past data to reveal the deepest job losses in 60 years, unwelcome news following warnings from Europe that the continent faced an unprecedented crisis.
The February non-farm payrolls data were in line with expectations but the December and January revisions helped push the unemployment rate to 8.1 percent, the highest since 1983, and meant the United States has lost 2.6 million jobs lost in the last four months alone.
"The situation is getting worse, not better," Mohamed El-Erian, the chief executive of bond giant Pimco, told Reuters Television on Friday. "Unemployment numbers are usually viewed as background-looking. What todays number tells you is forward-looking. It tells you that even the profitable firms are shedding labour today in order to position themselves for a more difficult outcome."
Sung Won Sohn, economics professor at California State University Channel Islands, said the jobs report understates reality and the effective unemployment rate was more like 14.8 percent when considering those too discouraged to look for work and part-time workers who want to go full-time.
The dollar fell on the jobs data and US stocks sank to 12-year lows. European stocks were down about 1 percent after Japans Nikkei index closed down 3.5 percent. Investors are feeling the squeeze. Wells Fargo & Co cut its dividend 85 percent, a widely expected move that the fourth-largest US bank said will save $5 billion a year.
CRISIS IN EUROPE European Commission President Jose Manuel Barroso warned the bloc economy was likely to contract by 2 percent this year. While dire, that outlook is much rosier than a forecast from European Central Bank staff on Thursday, who said the euro zone could shrink by as much as 3.2 percent.
Barroso said the commission was speeding up spending this year and next to restore credit flows and boost the economy. "The crisis will take time to fix. Its a serious crisis, but we can fix it," he said in Rome. The turmoil has hit Europes auto industry hard, as did a warning by auditors for US carmaker General Motors raising "substantial doubts" about its viability.
GM Europe submitted a rescue plan for Opel last week, under which its German unit, along with UK-based Vauxhall Motors, could be partly spun off from its parent. German Interior Minister Wolfgang Schaeuble said insolvency could be an option for Opel. Despite the blocs troubles, European Central Bank Executive Board member Lorenzo Bini Smaghi expressed confidence in the countries using the euro currency, and saw no chance of default on sovereign debt.
"All of 2009 will be negative, but maybe less negative than the last quarter of 2008 ... The negative elements should diminish in 2009 and become positive in 2010," he said.
US RECOVERY? Jeffrey Lacker, president of the Richmond Federal Reserve and a voting member of the Federal Open Market Committee, also sought to dispel the gloom, saying the US economy may start recovering before the end of this year.
China also served up another dose of optimism on Friday with top Chinese officials saying substantial fiscal and monetary stimulus was breathing life back into the worlds third-biggest economy, which has been hit by crumbling exports. Beijing saw no need to boost the existing investment plan of nearly $600 billion.
"The economic figures are stabilising and recovering, which demonstrates that the policies have begun to show an impact," central bank governor Zhou Xiaochuan told a news conference during the National Peoples Congress. Zhou was speaking a day after Premier Wen Jiabao said China would ramp up deficit spending this year to hit its target of 8 percent growth. That compares with 9 percent growth in 2008, which was a seven-year low.
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