Loss of Jobs Hits Hopes of Recovery : Economy: Payrolls were cut by nearly 250,000 last month. Report suggests double-dip recession. Fed drops interest rates.

The nation’s employers unexpectedly shed nearly a quarter of a million jobs in November, the government reported Friday, raising the specter of a double-dip recession and prompting the Federal Reserve Board to cut interest rates in an effort to break the economy’s fall.

The grim job report, the worst since the depths of last winter’s recession, came amid new signs that the White House is considering breaking last year’s budget agreement so it can propose a major, deficit-financed tax cut to stimulate the ailing economy.

The economy lost 241,000 payroll jobs last month, the Labor Department reported. But the November unemployment rate remained unchanged at 6.8% because the loss of jobs was offset by a shrinking labor force as many unemployed Americans simply stopped looking for work.

The bleak employment figures stunned Washington policy-makers and further undermined what until recently had been a firm consensus among Bush Administration officials and many outside economists that the worst of the recession was over and that a mild recovery was under way.

“These figures are horrible,” acknowledged one Administration official, requesting anonymity.

“For all practical purposes, this recession isn’t over,” said Donald Ratajczak, an economist at Georgia State University. “It looks like the recession never ended, like we just had false echoes of a recovery.”

The Fed responded quickly to the payroll report by cutting its benchmark “federal funds” interest rate--the amount banks charge each other for overnight loans--to 4.5% from 4.75%. It was the 14th reduction in the Fed funds rate since the recession began, and brought the rate to its lowest level since 1972.

Confronted with the worsening economic outlook, senior Bush Administration officials said they are discussing whether to include an income tax cut for the middle class as part of an economic growth package that President Bush plans to unveil in January.

In a potential policy reversal, the officials said the White House might propose reopening last year’s pay-as-you-go budget agreement to authorize a recession-fighting tax reduction without accompanying revenue increases or spending cuts. Such a proposal would stimulate the economy by placing more money in the hands of consumers and businesses, but it would expand the already bloated federal deficit.

The unemployment figures, coming just two months before the opening of the 1992 presidential campaign in the Iowa caucuses, raised new questions about the President’s ability to defend himself against Democratic criticism of his handling of the economy.

Bush, speaking to reporters in California, said the jobless rate was “far too high,” but noted that some economists had predicted the unemployment report would be even worse. Bush said he is “absolutely confident things are going to be better.”

But with the President’s standing in the polls already plunging, leading Democrats seized on the unemployment figures to once again attack Bush on his handling of the economy, which seems likely to become the dominant issue of the upcoming presidential campaign.

“There are growing grounds for concern that the economy may be heading down again, despite repeated assurances from the Administration that a recovery is under way,” said Sen. Paul S. Sarbanes (D-Md.), chairman of the Joint Economic Committee of Congress. “The sinking economy needs a life preserver, yet the Administration remains content to stand on the shore shouting words of encouragement.”

The continuing recession, added House Majority Leader Richard A. Gephardt (D-Mo.) “is the result of three years of inadequate presidential leadership.”

Although last month’s job loss was far worse than even the most pessimistic expectations, the shrinking labor force left the unemployment rate at roughly the same level it has held since peaking at 7% last March. An estimated 8.5 million Americans were looking for work in November, 1.7 million more than when the recession began in July, 1990. The labor force shrank by nearly 300,000 in November, suggesting that more and more unemployed workers have given up hope and dropped out of the job market.

November’s losses contrasted sharply with gains posted in September and October, when the economy created a combined total of about 100,000 jobs.

In California, which has suffered more in the current downturn than in previous recessions, the unemployment rate fell slightly, from 7.8% to 7.4%.

Other large states suffered bigger losses in November. In Illinois, for example, the unemployment rate jumped from 7.7% to 8.5%, while in New York, it rose from 7.2% to 8.0%. State jobless rates tend to be more volatile than the national average.

The job losses cut a wide swath through major industries. Pre-Christmas hiring by retail stores was well below normal levels, causing a seasonally adjusted loss of 111,000 jobs. Construction employment plunged by 95,000 jobs, further depressing an industry already suffering from double-digit unemployment rates. The nation’s factories lost another 33,000 jobs, apparently ending hopes for the moment that export-led manufacturing would lead the economy back to recovery.

“This is a pretty rotten picture,” said David Wyss, an economist with DRI-McGraw Hill, an economic forecasting firm in Lexington, Mass. “The recovery just hasn’t materialized.”

The gloomy assessments by private economists were echoed by Fed Chairman Alan Greenspan.

“The economic recovery, which seemed to be gathering momentum and spark during the summer, more recently has shown signs of faltering,” Greenspan said in a speech to securities industry officials in Florida. “I’m sure we all can agree that these are highly uncertain times.”

Friday’s cut in the federal funds interest rate marked a policy reversal for the Fed, which had hoped to avoid further rate cuts for the remainder of the year in order to hold the line on inflation. But most economists agreed that the Fed had little choice but to act in order to stave off an even sharper drop in business and consumer confidence and spending.

“Consumer confidence has plunged because people are reacting to real and permanent job losses,” said Bruce Steinberg, an economist at Merrill Lynch.

“This reinforces a pretty pessimistic view of the economy,” added John Q. Wilson, chief economist at Bank of America. “These numbers feed into lower confidence. People out there are getting paranoid about unemployment, and they are not going to spend more. Consumers are on the sidelines waiting for the economy to improve, and the government is on the sidelines waiting for the consumer to start spending, and we’re going nowhere. It looks like we are going into a year where the economy is flat.”

While the President has committed himself to proposing some form of economic growth plan in next month’s State of the Union address, sources said that Bush has not yet decided whether to reopen the budget agreement in order to cut taxes and stimulate the economy. The White House has opposed such policies in the past, arguing that the budget agreement provides the only real spending discipline in Washington. In fact, senior Administration policy-makers have repeatedly criticized Democratic plans for middle-class tax relief on the grounds that such proposals would worsen the deficit and lead to a bidding war to see which party could cut taxes the most.

But with the economy weakening and the campaign season approaching, both Michael J. Boskin, Bush’s chief economic adviser, and Richard G. Darman, the White House budget director, have indicated that the White House might be willing to consider reopening the budget pact to provide middle-class tax relief.

White House sources said the new willingness to consider a sharp reversal of Bush strategy is at least partly the result of the growing influence of Bush’s campaign advisers on economic policy.

“What you are seeing is both a recognition that the economy is worsening, and overlaid on top of that substantive problem the fact that you have a campaign,” said one source.

Although Washington officials and many private analysts were caught off guard by the unexpectedly large job loss in November, some economists noted that the reduction is attributable in part to seasonal adjustments instead of actual job cuts.

Economists said the bulk of the decline in payrolls stemmed from two factors--first, retailers did not hire as many temporary workers for the Christmas season as they usually do, and, second, bad weather interfered with some construction projects.

Under the Labor Department’s method of compiling employment figures, analysts adjust the job statistics each month to reflect seasonal patterns such as holiday hiring practices. While retailers actually added some 215,000 jobs to their payrolls, the number of new hires was substantially less than usually is the case in November. As a result, the figure was counted as a decline.

The job picture in construction was even more complex, and contrasted with recent reports that show housing starts increasing vigorously and new home sales up. Construction figures can be volatile, and November’s losses may have reflected bad weather in the Midwest.

Janet L. Norwood, the government’s commissioner of labor statistics, said the November report “overstated” the actual decline in payroll jobs. Nevertheless, it raised new doubts about previous assertions that the economy was on the road to a sustained recovery.

Times staff writers Art Pine and Oswald Johnston in Washington contributed to this report.

CALIFORNIA’S JOBLESS: The state rate fell to 7.4% but other employment statistics reflect a continuing slump. D1

U.S. Jobless Rate Breakdown for November: Adult men: 6.3% Adult women: 5.9% Black: 12.1% White: 6.1% Latino: 10.2% Source: U.S. Dept. of Labor