January job losses stir fears of a recession

Recession fears surged Friday after the government reported that the economy lost jobs last month for the first time in more than four years because anxious businesses had cut back on workers, hours and wages.

The monthly payroll report -- which many experts consider the most important indicator of the nation’s economic health -- arrived as the presidential campaign heads toward its biggest primary day and voters say the economy is their top issue.

The economy lost 17,000 jobs in January, the Labor Department reported. The unemployment rate ticked downward slightly to 4.9% from December’s 5.0%, but economists said that probably resulted from discouraged job-seekers leaving the labor force.

“These poor jobs data are the strongest evidence so far that the economic expansion is grinding to a halt,” said University of Maryland economist Peter Morici. “The economy is in recession mode.”

On the campaign trail, just days before the Super Tuesday contests in more than 20 states -- including California -- presidential candidates from both parties greeted the news with pledges to turn the economy around.

“We are in a difficult time. And we’ve got to act, and we have to do things in order to restore our economy and provide people with jobs and some optimism and hope,” Republican front-runner Sen. John McCain said in Chesterfield, Mo.

There was bad news on many pages of the government data release, including suggestions that the economy has been doing worse than previously thought for most of the past year. Revised 2007 data showed that the economy created on average just 95,000 jobs a month, well below the roughly 150,000 needed to keep pace with natural population growth.

Then, after adding 83,000 jobs in December, businesses cut back sharply in January, trimming their payrolls -- the first time since August 2003 they have moved into negative numbers.

John Silvia, chief economist at banking company Wachovia Corp. said a poor January jobs report is a bad portent because it suggests that managers have shifted their hiring policies for the new year. “One month is a bad sign. If sustained, you probably wind up with a recession later this year,” Silvia said.

Payrolls grew by a scant 42,000 per month over the past three months, compared with 169,000 over the comparable period a year ago, said economist Jared Bernstein of the Economic Policy Institute.

He also noted that the losses were not confined to sectors of the economy known to be in trouble -- namely housing construction and manufacturing -- but were spreading to professional services and government.

“It ain’t pretty, but this is what recessions look like in the job market,” Bernstein said.

Administration officials said that the unemployment rate remained essentially constant for the past month, and they said that 5% unemployment was historically low.

But Bernstein noted that the unemployment rate is up a half-percentage point in the past year, an increase that represents about 750,000 workers. “While the level is low and that is a good thing, the signs flashing recession cannot be ignored,” he said.

Completing a three-day cross-country trip, President Bush acknowledged Friday that “there are serious signs that the economy is weakening and that we got to do something about it.”

Speaking to a small group of Hallmark Cards Inc. employees at the greeting card company’s headquarters in Kansas City, Mo., Bush noted -- as he often does -- that the economy created jobs for 52 months in a row before January.

“The fundamentals are strong,” Bush said. “We’re just in a rough patch, as witnessed by the employment figures today. And I’m confident we can get through this rough patch.”

The stock market shook off the dispiriting jobs report, largely because of enthusiasm over Microsoft Corp.’s surprise bid for Yahoo Inc. The Dow Jones industrial average closed up almost 93 points, at 12,743.

Signs of an economic slowdown have been building for months, fueling anxiety on Wall Street and exacerbating a credit crisis caused by a drop in housing prices.

The Federal Reserve has tried to ease the crunch by lowering interest rates sharply -- dropping its benchmark rates another half percentage point on Wednesday for a total of 1.25 percentage points in January.

On Capitol Hill, lawmakers are working on the other economic lever that can forestall a recession: fiscal spending. The House has passed a $146-billion economic stimulus package that includes tax rebates for middle- and lower-income workers.

“Whether [the economy] is just stalled or heading into recession isn’t yet clear,” said Nigel Gault of Global Insight, an economic forecasting firm in Lexington, Mass.

“But we should expect to see more bad news on the labor market, at least through the middle of the year, before the heavy doses of monetary and fiscal stimulus begin to kick in.”

Senators are working on their own version of the stimulus package, and Democrats used the jobs report to argue that expanded unemployment benefits should be added to it.

“Today’s numbers are clear proof we need immediate action to jump-start our economy, and extending unemployment benefits is an indispensable part of that effort,” said Sen. Edward M. Kennedy (D-Mass.), chairman of the Senate labor committee.

Maurice Emsellem of the National Employment Law Project in Oakland estimated that 218,000 workers in California will run out of unemployment benefits over the next six months.

“Today’s jobs report, showing a continued growth in long-term joblessness, underscores the need for Congress to extend jobless benefits next week when they vote on the Senate’s economic stimulus package,” Emsellem said.

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maura.reynolds@latimes.com

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Times staff writers James Gerstenzang in Kansas City, Walter Hamilton in New York, Maria L. LaGanga in Los Angeles and Maeve Reston in Chesterfield, Mo., contributed to this report.