Washington – Employers sliced payrolls by
4,000 in August, the first drop in four years, a stark sign that a painful
credit crunch that has unnerved Wall Street is putting a strain on the national
economy.
The latest snapshot of the employment climate, released by
the Labor Department today, also showed that the unemployment rate held steady
at 4.6 percent, mainly because hundreds of thousands of people left the work
force for any number of reasons.
Job losses in construction, manufacturing, transportation
and government swamped gains in education and health care, leisure and
hospitality, and retail. Employment in financial services was flat.
The weakness in payrolls reflected fallout from a deepening
housing slump, a credit crisis and financial turbulence that has made
businesses more cautious in their hiring.
“I think a lot of businesses are moving to the sidelines to
wait and see how things shake out,” said Ken Mayland,
president of ClearView Economics.
On Wall Street, stocks tumbled. The Dow Jones industrials
average was down more than 150 points in morning trading.
The report was much weaker than economists were expecting.
They were forecasting payrolls to grow by 110,000.
The drop of 4,000 jobs in August was the first decline since August 2003. Payrolls fell by 42,000 at that time as the job market was still
struggling to recover from the 2001 recession.
The surprisingly weak report provides the Federal Reserve with a reason to lower interest rates when it meets next on Sept. 18.
Federal Reserve Chairman Ben Bernanke, in a speech last week, said the Fed stands ready to do all that is needed to
keep the credit crunch that has rocked Wall Street from damaging the economy.
Economists increasingly believe the Fed will lower a key interest rate, now at 5.25 percent, by at least one-quarter percentage point on
Sept. 18, its next meeting. The Fed has not lowered this rate in four years.
“Clearly the economy is struggling, and this is the kind of evidence that really makes a strong case for a Fed easing move,” Mayland said.
Those with jobs, however, did see modest wage gains.
Average hourly earnings rose to $17.50 in August, a 0.3 percent increase from July. That matched economists’ forecasts.
Over the past 12 months, wages are up 3.9 percent. Wage growth supports consumer spending, a major ingredient for a
healthy economy. If the job markets continus to lose
steam, however, wage growth will eventually slow, too, economists said.
The modest wage growth could ease inflation fears, giving
the Fed more leeway to cut interest rates.
On the payrolls front, job gains in June and July turned out
to be smaller. The economy added 68,000 new jobs in July compared with 92,000
reported a month ago. For June, 69,000 new jobs were created, less than the
126,000 previously reported.
The 4,000 jobs cut in August are from both private and
government employers. The government actually cut 28,000 jobs, while all
private employers added 24,000.
