The U.S. economy edged a step closer to recession in December by producing only 18,000 new jobs, its worst performance in four years, and...
WASHINGTON — The U.S. economy edged a step closer to recession in December by producing only 18,000 new jobs, its worst performance in four years, and sending the unemployment rate to a two-year high of 5 percent, the Labor Department said Friday.
The meager job gains, much weaker than expected, showed the toll that tightening credit, a slumping housing market and a staggering stock market are taking. The worst of the job-market trouble was concentrated in construction, which shed 49,000 jobs, and manufacturing, which lost 31,000.
But the losses were widespread, suggesting that the economy’s troubles run deep. They were compensated for by gains in only a few areas, especially health care, food service and government.
“There’s nothing heartwarming about this report,” said Neal Soss, chief economist with Credit Suisse Group in New York. “It confirms what economists have been worried about, which is a broad-based economic slowdown.”
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Stocks tumbled on the news. The Dow Jones industrial average ended the session down 256 points.
The weak hiring was accompanied by stronger-than-usual wage growth. Average hourly earnings increased 7 cents, or 0.4 percent, to $17.71 in December, according to the Labor Department. That was up 4.3 percent from a year ago, and, though good news for working people, it made the Federal Reserve’s job of managing the economy harder by adding a whiff of inflation even amid signs of a slowdown.
Analysts said that despite the inflation danger, the Fed was likely to further cut interest rates later in January in an effort to dodge recession. The central bank already has sliced its signal-sending federal-funds rate, the interest banks charge each other for short-term loans, a full percentage point since September, when it first reacted to the subprime mortgage mess and deepening credit crunch. That rate now is 4.25 percent.
“The job market is operating at stall speed,” said Mark Zandi, chief economist of Moody’s Economy.com, a West Chester, Pa., research company. “Either something is going to revive it quickly or we’re going to get into an unraveling vicious cycle off declining spending and the even weaker job growth.”
Investment banks Goldman Sachs and JPMorgan Chase on Friday predicted a half-point cut in the Fed’s key rate when policymakers meet Jan. 30.
December’s addition of 18,000 positions was the job market’s worst performance since August 2003, when the economy lost 42,000 jobs. The December number was down from an upwardly revised November job gain of 115,000 and a downwardly revised October gain of 159,000.
For all of 2007, employers added 1.3 million payroll positions, compared with 2.3 million in 2006, according to the Labor Department. Both figures were anemic compared with the economy’s performance in the late 1990s, when the economy regularly would add 3 million or more employees a year.
December’s unemployment rate of 5 percent was three-tenths of a point higher than November’s 4.7 percent rate, the largest single-month jump in joblessness since April 1995.
Analysts had expected the economy to add 50,000 to 70,000 jobs in December.
The report spooked investors who had taken solace in the belief that steady job and wage growth would prop up consumer spending, lessening the blow from the housing maelstrom.
“The worry here is that we have been creating new consumers by creating new jobs and they’ve been spending their income,” said Jim Swanson, chief investment strategist at the MFS mutual-fund group. “Now it looks like job growth is ratcheting down, so we’re creating fewer consumers and the market says, ‘Oh my God, lower [corporate] profits.’ “