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The February job figures confirm that the economy, while not officially in recession, is stuck in neutral and beginning a slide into reverse this quarter. Net jobs last month shrank by 63,000. And the January number was revised to a loss of 22,000 from an initial report of minus 17,000. This year's declines are the first since August 2003. Expect job growth for all of 2008 to increase about 600,000, well below the 1.13 million gain of 2007.
The unemployment rate, which stood at 4.9% in January, moved to 4.8% last month, reflecting fewer people looking for work. We expect weak economic growth until the summer, and as a result, the unemployment rate will move to about 5.5% by the end of this year.
The report leaves no doubt that the Federal Reserve will continue to reduce interest rates in an effort to prevent the economy from getting much weaker. Most likely is another half point reduction when the Federal Open Market Committee meets on March 18, or sooner if credit market conditions seriously deteriorate. A three quarter point cut is also possible if there's more bad news. A half point move would leave the benchmark fed funds rate at 2.5%, down from 5.25% last September.
The stimulus produced by lower interest rates combined with the stimulus package passed recently by Congress should spark modest growth starting this summer.
The Fed also took a step today to provide more credit for the banking system. The Fed will increase the size of two auctions as well as take other measures that will enable banks to borrow from the Fed and use mortgage-backed securities as collateral. The Fed is trying to stimulate nearly frozen credit markets that aren't responding much to interest rate reductions.
The job report isn't totally bleak. Health care, the strongest sector for job creation, continues to grow. And the weak dollar, which attracts foreign tourists to the U.S., is helping create employment in restaurants and hotels. All of that, however, is not enough to offset ongoing job cuts in construction and manufacturing, which were joined by a decline in retailing.
In addition to the data, officials at the Federal Reserve also gather anecdotes from around the country every six weeks and release them in The Beige Book. The most recent collection, made public March 6, backs up the picture of a weakening labor market.
A majority of the 12 districts reported some or all of the following: reduced hiring, reduction in work hours, layoffs or hiring freezes. In another ominous sign, many businesses and consumers reported an increasing mood of caution. As that translates into less spending, the economy will grow weaker.
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POSTED BY: D. Henderson (March 11, 2008 01:17 AM)
Reducing the interest rate is driving down the value of the dollar and that is making oil and everything else more expensive. The price of oil is not connected to supply anymore.It is connected to gambling and politics.
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