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Job growth at 4-year low

The Baltimore Sun

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 per- cent.

The meager job gains, reported yesterday by the Labor Department, were much weaker than expected and showed the toll that tightening credit, a slumping housing market and a staggering stock market are taking on the nation.

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 partly offset 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 Inc. in New York. "It confirms what economists have been worried about, which is a broad-based economic slowdown."

Stocks tumbled on the news. The Dow Jones industrial average ended the session down 256.54 points, or nearly 2 percent, to 12,800.18.

The broader Standard & Poor's 500 index slid 35.53 points, or 2.5 percent, to 1,411.63, and the Nasdaq composite plunged 98.03 points, or 3.8 percent, to 2,504.65.

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.

President Bush, meeting yesterday with financial advisers, including Treasury Secretary Henry M. Paulson Jr., said the economy was solid despite the monthly jobs slowdown.

"This economy of ours is on a solid foundation, but we can't take economic growth for granted," the president said. "There are signs that will cause us to be ever more diligent and to make sure that good policies come out of Washington."

The administration said it was considering an economic stimulus package that might include tax cuts to ward off a recession. Officials stressed that Bush has not decided yet to offer a proposal but was looking at a variety of options, with a plan possibly being unveiled around the time of his Jan. 28 State of the Union address.

Analysts said that despite the inflation danger, the Fed was likely to further cut interest rates at the end of this month in an effort to dodge recession. The central bank 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 deepening credit crunch. That rate now is 4.25 percent.

The Fed announced yesterday that it is increasing the amount of money available to banks through the new auction process it created to ease the nation's severe credit squeeze. The Fed said that it will increase the amount offered at each of the next two auctions from $20 billion to $30 billion, a 50 percent jump.

"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 ... even weaker job growth."

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.

Peter G. Gosselin and Walter Hamilton write for the Los Angeles Times. The Associated Press contributed to this article.

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