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More jobs disappear
Unemployment rate holds at 5.8% as U.S. employers cut 108,000 more jobs from payrolls.
April 4, 2003: 11:17 AM EST
By Mark Gongloff, CNN/Money Staff Writer

NEW YORK (CNN/Money) - The U.S. unemployment rate was steady in March, but employers cut 108,000 jobs from their payrolls, the government said Friday, reflecting continuing weakness in the world's biggest economy in the first days of war with Iraq.

Though the number of jobs cut was far higher than most economists expected, the flat unemployment rate and some other hopeful details in Friday's report should keep Federal Reserve policy makers from cutting interest rates a little while longer, many analysts said.

"Combined with a steady jobless rate and a modestly higher stock market, we believe [economic] growth is sufficient to keep the Fed on hold for now," said Maury Harris, chief U.S. economist at UBS Warburg.

Unemployment held at February's 5.8 percent rate, the Labor Department reported, but non-farm payrolls shrank again after losing a revised 357,000 jobs in February.

February's job loss, revised upward from an initial report of 308,000, was the biggest one-month loss since October 2001, when employers slashed 405,000 jobs in response to the Sept. 11 terrorist attacks.

Economists, on average, expected unemployment to rise to 5.9 percent and 29,000 payroll cuts in March, according to a Reuters poll.

The report seemed to have little impact on U.S. stock prices, which were mixed in early trading. Treasury bond prices fell.

Worst slump since World War II continues

The March payroll data -- derived from a survey of businesses, unlike the unemployment rate, which comes from a survey of households -- were probably skewed by seasonal factors and by call-ups of reservists for the war, but the Labor Department said it had no idea how much reserve call-ups affected the data.

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CNNfn's Tim O'Brien reports from the Labor Department on unchanged unemployment rate of 5.8% and 108,000 jobs cut from payrolls in March.

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Friday's report means the year-to-year net change in private payrolls has been negative for 21 straight months, extending the longest stretch of labor-market pain since 1944-46. Private payrolls are now 2.5 million jobs lower than they were in March 2001, when a recession began.

"We're looking at a recession/jobless recovery that's two years old to the day," Jared Bernstein, labor economist at the Economic Policy Institute, a Washington think tank, told CNNfn.

Jobs were cut from a wide range of industries in March. Payrolls in goods-producing industries fell 14,000, while service-producing jobs fell 94,000. The construction sector was the only bright spot, adding 21,000 jobs.

Retailers cut 43,000 jobs. Service industries, such as tourism, data processing and personnel supply lost 10,000 jobs. The government sector shed 40,000 jobs, the worst month since a 131,000-job decline in August 2000.

"This may be a natural reaction to the war, but the losses are deep and spell increasing trouble for the economy if uncertainties do not lift very quickly," said Stephen Gallagher, chief U.S. economist at SG Cowen.

Disconnect between jobless rate and payrolls

Though it might seem contradictory that the unemployment rate would be steady on the heels of a big loss in payrolls, the two numbers are generated by different surveys -- one of homes and the other of businesses -- and often give conflicting signals.

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In fact, Morgan Stanley's chief U.S. economist, Richard Berner, said in a research note published just before Friday's report that, according to historical models, the unemployment rate should actually be higher, given how miserable the labor market has been.

"The unemployment rate in the first quarter should have been at least 6.3 percent -- significantly higher than January-February's 5.75-percent average," Berner wrote.

The unemployment rate has stayed steady, in part, because many frustrated workers are leaving the labor market, which is the pool of people who are either working or looking for work. This exodus -- 64,000 more left in March -- could reflect frustration at the difficulty of finding a job; the number of "discouraged" workers has risen to 474,000 from 330,000 a year ago, the Labor Department said.

Fed likely on hold

Before the report, many economists speculated that bad labor-market news might force the Federal Reserve to cut its target for short-term interest rates to fend off any damage the weakness could do to the broader economy.

After cutting its key interest rate to a 40-year low in November 2002, the Fed has been content to sit on its hands, saying the economic disruption caused by the run-up to war has made judging the underlying strength of the economy impossible.

Though the payroll side of Friday's report was uglier than economists expected, the unchanged unemployment rate could keep the central bank on the sidelines a little longer.

"The unemployment number is the one Main Street looks at," said Anthony Chan, chief economist at Banc One Investment Advisors. "This buys the Fed a little more time and allows it to hold true to its word that, until geopolitical risk lifted, no stimulus should be added to economy."

Encouraging signs

And certainly there were some encouraging data in the report, making it less than completely awful and raising some hope for the future.

Average hourly wages rose 0.1 percent to $15.10 an hour from $15.08 an hour in February. Economists, on average, expected a gain of 0.2 percent, according to a Reuters poll. In a weak labor market, wage growth is a critical support to consumer spending, which makes up more than two-thirds of the nation's economy.

The average work week rose to 34.3 hours from 34.1 in February, a sign businesses were increasing activity, even if they weren't adding workers. Factory hours were flat at 40.8, while overtime hours fell to 4.0 from 4.1 in February.

And the number of people out of work for 27 weeks or more dipped to 1.79 million from 1.87 million in February. The average length of unemployment fell to 18 weeks, the lowest since 17.9 in November 2002.

Still, a vocal minority of analysts doubt the economy will immediately pick up after the war with Iraq, citing continuing excesses in capacity and debt, the hangover from the late-1990s investment bubble.

And geopolitical uncertainties in North Korea and other parts of the world, along with the growing threat of SARS, the deadly respiratory ailment some analysts worry could continue to spread from Asia, could combine to keep economic growth at a "stall speed," vulnerable to recession and unable to generate much job growth.

"The Fed ultimately will be forced to cut rates further because we have had this ongoing issue of sub-par growth, disappointment on the jobs front and core inflation edging lower," said Rory Robertson, interest-rate strategist at Macquarie Equities' U.S. office. "People are talking about a terrific snap-back in the economy after the war, but I'm skeptical we're likely to see it."  Top of page

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