Economists say the larger-than-consensus decline in employment in September is further evidence of broad-based weakness in the economy, and there are no indications that job losses will ease anytime soon. As a result, many are saying the Federal Reserve should cut the target interest rate.
U.S. nonfarm payrolls declined for the ninth straight month, falling more than expected by a total of 159k jobs in September, according to the Bureau of Labor Statistics (BLS) on Friday. The unemployment rate remained at 6.1% (6.125%), as expected, despite a 222k decline in household survey jobs.
The report marks the biggest monthly decline in employment since net job losses began in January. By comparison, average losses between January and August were 75k. In 2008 so far, total net job losses are now at 760k.
Millan Mulraine from TD Securities said labour conditions are "worsening at a fairly fast pace." He said it's becoming obvious that the U.S. is heading into a period of sustained weakness and perhaps a recession.
"Moreover, with the adverse impact of the housing and financial sector turbulence appearing to have taken hold in the real economy we expect the U.S. deterioration in the U.S. labour market to continue for some time," he added.
RBC's Paul Ferley said that when looking at the employment report alongside the ISM manufacturing index and the consumer spending survey, the numbers are pointing towards a recession. "The data in total is flagging a downward trend in the economy that will result in negative GDP growth in both the third and fourth quarters of this year," he said.
Even if the Treasury's bailout package passes through the House today, the Fed should cut by 50 basis points at their next meeting on Oct. 29, Ferley added.
ING Financial Markets' Rob Carnell said that even without a financial sector crisis, further easing from the Fed would be warranted. "Slowing wages growth highlights the lack of threat from inflation and inflation expectations. With the addition of financial sector turmoil, further easing looks highly probable," he said.
Senior U.S. economist Paul Ashworth from Capital Economics said there's a distinct possibility that the Fed could cut rates soon at an emergency meeting, regardless of the House vote.
"[T]here is now enough evidence that conditions in the real economy have deteriorated sufficiently to warrant a rate cut... perhaps as soon as Monday morning before US stock markets open," he said.
The loss in total private jobs was 159k in September. The goods-producing sector lost 77k, construction fell by 35k, and manufacturing lost 51k jobs. The business services sector lost 27k jobs and the financial sector lost 17k jobs.
BLS commissioner Keith Hall said construction has shed 607k jobs since its peak in September 2006. "Eighty-five percent of the job losses over this 2-year period have occurred in residential building and residential specialty trades," he added.
Hall also said Hurricane Ike had no substantial effect on the figures released for September. "For weather conditions to have affected payroll employment, people would have had to be off work for the entire pay period and not paid for the time missed," he added.
The only positive gains seen in September were in areas outside the business cycle. Government jobs increased by 9k and education & healthcare advanced by 25k.
Revisions were fairly insignificant in the report, adding 4k jobs in the past two months. August's decline was upwardly revised to a loss of 73k jobs from an initially reported loss of 84k jobs, and July's loss was downwardly revised to a 67k drop from an initially reported 60k.
By Patrick McGee and edited by Nancy Girgis
©CEP News Ltd. 2008