Payrolls fall again, raising recession fears

By Glenn Somerville

WASHINGTON (Reuters) - U.S. employers unexpectedly cut jobs in February at the steepest rate in nearly five years, a second straight month of employment losses that heightened fears the world's largest economy has skidded into recession.

"The question appears no longer to be are we going into a recession but how long and deep it will be," said economist Joel Naroff of Naroff Economic Advisors Inc in Holland, Pennsylvania.

The Labor Department on Friday said 63,000 nonfarm jobs were eliminated on top of an upwardly revised loss of 22,000 in January, sharply contrary to Wall Street economists' forecasts that 25,000 positions would be added in February.

The department also halved the number added in December to 41,000 from the 82,000 estimated a month ago, in a move that underlined the steady deterioration in the U.S. labor market.

"The underlying trends are horrible, with worse to come," said economist Ian Shepherdson of High Frequency Economics in Valhalla, New York. "The Fed (Federal Reserve) has to ease (U.S. benchmark interest rates) much more."

The U.S. central bank already has cut its federal funds target rate by 2.25 percentage points since September to its current 3 percent level and is widely expected to slash it again at its next policy-setting session on March 18.

STOCK PRICES SEESAW

Stocks <.DJI><.SPX><.IXIC> were down in volatile trading by early afternoon and U.S. Treasury bonds were higher as investors sought safer haven.

Just before the employment report's release, the Fed said it was increasing the size of special auctions it conducts twice a month to add funds, or liquidity, into highly stressed capital markets. That should make it easier for businesses to borrow money needed to expand and to boost hiring.

The White House acknowledged its disappointment in the bleak jobs report. "This quarter's going to be a difficult quarter for the U.S. economy. We are in a low growth period in the economy," White House spokesman Tony Fratto said.

At a later briefing, White House economic adviser Edward Lazear said the Bush administration has "definitely downgraded" its forecast for first-quarter economic performance. He refused to respond to questions on whether a recession was under way.

"Recessions are things that are declared by other people," Lazear said.

The job report is one of the first gauges of overall U.S. economic activity each month and so the bleak February report sent a shock through the global financial sector.

"This confirms the fears that have been lurking in the financial markets in recent weeks. The probability of a U.S. recession is at more than 50 percent," said Richard DeKaser, chief economist for National City Corp in Cleveland.

"The Fed has to be more aggressive," DeKaser added.

WORST SINCE 2003

The back-to-back January and February job losses were the first consecutive monthly declines since May and June of 2003, shortly after the start of the U.S.-led invasion of Iraq.

Labor Department officials said February's job losses were the largest for any month since March 2003, when 212,000 jobs were cut.

During February, the U.S. unemployment rate eased to 4.8 percent from 4.9 percent in January, but that was because fewer people were in the labor force. The department said the number of people in the workforce fell by 450,000 in February, likely a sign that many people have given up trying to find a job.

Job losses were widespread. Some 52,000 jobs were lost at factories, the largest decline since July 2003 when 92,000 jobs were cut. Construction businesses eliminated another 39,000 on top of 25,000 cut in January, a reflection of the housing industry's deepening woes.

The department said that since the housing boom peaked in September 2006, construction businesses have cut 331,000 jobs.

Retailers also shed jobs last month, dropping 34,000 people off their payrolls, a possible reflection of concern that hard-pressed consumers are likely to begin pulling back sharply on spending.

In a statement issued with the data, Bureau of Labor Statistics Commissioner Keith Hall warned that many of this year's job losses may take a long time to come back.

"The increase in unemployment over the past 12 months was concentrated among persons who lost jobs and had no expectation of being recalled," Hall told the congressional Joint Economic Committee.

In one bright spot, the government added 38,000 jobs in February on top of 4,000 new hires in January, while education and health services businesses added 30,000 new hires in February on top of 49,000 in January.

(Reporting by Glenn Somerville; Editing by James Dalgleish)

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