Jobs Plunge 308,000 Amid War Worries

CAREN BOHAN / Reuters 7mar03

WASHINGTON - The U.S. economy last month suffered its worst jobs drop since the aftermath of the Sept. 11 attacks, as worries over an Iraq  war led companies to put the brakes on hiring.

Payrolls plunged 308,000 in February, the Labor Department  said on Friday. It was the biggest slide since a 327,000 drop in November 2001, just after the deadly hijack attacks on the World Trade Center. The jobless rate rose to 5.8 percent in February from 5.7 percent in January.

Harsh winter weather and the call-up of military reservists to the Gulf may have played into some of the recent weakness.

"The closer we get to war, the greater the impact it is having on the economy," said Joel Naroff, economist at Naroff Economic Advisers in Holland, Pa. "It's not that firms are firing, it's just they are simply not hiring."

Stock markets and the dollar initially tumbled on the data, with the currency hitting a four-year low versus the euro. But markets rebounded on hopes Osama bin Laden  might be near capture. The Dow Jones industrial average finished 66 points, or nearly 1 percent, higher after slumping to its lowest level since Oct. 11 earlier in the session. The Nasdaq Composite Index rose 2 points to end at 1,305.

Some bond traders speculated that the jobs data might prompt the Federal Reserve  to cut rates at its next meeting on March 18. But several economists downplayed that prospect, saying the Fed may be reluctant to act until it sees how the Iraq crisis plays out.

"TEPID AND SOFT" JOB MARKET

In an interview with Reuters, Federal Reserve Governor Ben Bernanke stressed no single economic figure is ever definitive in terms of assessing the economy, and noted that snowstorms and the call-up of reservists appeared to have affected the latest jobs numbers.

Still, he said, the data in recent weeks and months have painted a picture of softness in the labor market.

"The job market seems pretty tepid and soft. The better news is more on the capital investment side," Bernanke said.

"It's very distressing that the labor market isn't doing better, but overall I think it's consistent with ongoing drag from the geopolitical situation."

A Reuters poll of 21 top Wall Street bond dealers after the dismal payrolls report found five firms expect the Fed will trim rates by a quarter percentage point at the March 18 policy meeting, up from three in a previous survey.

Payroll figures have been choppy in recent months but the overall trend has been downbeat. Labor said that jobs rose by 185,000 in January. But they fell 147,000 in December.

In February, the East Coast was hit by a cold snap and a series of snowstorms that economists said likely put a temporary damper on retail and construction activity.

About 150,000 reservists have been called to active duty by mid-February in the Gulf buildup, a rise of a little more than 90,000 since mid-January, the Defense Department has said.

When a reservist leaves a job for duty, it is reflected as a payroll loss unless they are replaced, said Tom Nardone, chief of the division of the labor force statistics with the Labor Department's Bureau of Labor Statistics.

He said the department could not gauge how many reservists had been employed, nor how many left jobs but were replaced.

"We don't really know what impact that could have had on the numbers," Nardone added.

"CATASTROPHICALLY WEAK"

Despite the special factors, Pierre Ellis, economist with Decision Economics in New York, called the payrolls figure "catastrophically weak."

"This kind of job loss translates into potential serious damage to consumer spending. A decline in consumer spending would put the economy into double-dip recession very quickly." he said.

The underlying health of the economy should become clearer in coming months if the Iraq tensions come to a head soon.

President Bush  on Thursday said Washington would push the U.N. Security Council for a vote within days on a resolution backing action against Iraq, but said he was ready to go to war even if the resolution fails.

Worries about terror attacks also are weighing on the economy. The U.S. government on Feb. 7 raised the alert for a possible attack to the second-highest level, code orange. While it lowered that a notch to yellow last week, lingering jitters appear to be dampening such industries as travel.

Earlier this week, Walt Disney Co. said the terror alert and war fears were hitting travel to the company's theme parks, leading it to freeze hiring in February.

Although the consensus economic forecast had projected a slight rise of 8,000 in payrolls in February, several analysts had cut their forecasts in recent days to anticipate a possible decline after a raft of downbeat signals, including a spike in applications for jobless claims.

February's job losses were widespread. Losses in the retail sector were especially steep, with a 92,000 fall. Manufacturing jobs dropped 53,000 and construction jobs tumbled 48,000.

In an unusual development at odds with signs of weakness elsewhere in the jobs report, average hourly earnings rose by 0.7 percent to $15.08 after a 0.1 percent drop in January.

However, the average workweek shrank to 34.1 hours from 34.3 hours in January.