Job Woes Deepen Economic Anxiety
Losses Extend Past Housing Industry

By Neil Irwin
Washington Post Staff Writer
Saturday, January 5, 2008

The unemployment rate soared and job growth came to a near-halt in December, the government said yesterday, as the housing downturn rippled through the economy. It is the strongest evidence to date that growth is slowing.

The Labor Department report drove the stock market down and made it almost certain that the Federal Reserve will cut interest rates this month. The report also put new pressure on the Bush administration to come up with an economic stimulus package, something the president has said he may propose in his State of the Union address.

The jobless rate rose to 5 percent last month, from 4.7 percent in November. Moves of that size are rare; the last time the jobless rate moved that much in a month was October 2001, just after the Sept. 11 terrorist attacks.

Employers created a paltry 18,000 net jobs. Economists had forecast four times as many new positions, and it takes about 125,000 a month just to keep up with population growth.

"We are on the verge of recession now," said Robert A. Dye, senior economist at PNC Financial Services Group. "We are teetering on the edge of a precipice, and it will not take much to push us over."

Economists have been hoping that the fallout from the downturn in housing and related crisis in financial markets would be contained to industries closely related to those businesses. That hope, it would appear, is not being borne out.

Some of the steepest job losses were in areas closely tied to housing: residential construction, which shed 28,500 jobs in December; and the sector that includes mortgage brokers, with 7,000 jobs lost.

But the losses were considerably broader. With homes worth less and credit harder to get, consumers are buying fewer cars; automakers cut 6,300 jobs. The holiday selling season was mediocre, which led retailers to cut 24,300 jobs.

"This report shows vividly that the problems of housing have clearly spread through other areas of the economy," said David Rosenberg, chief North American economist for Merrill Lynch.

That is pressuring Washington to react. President Bush indicated this week that he was considering proposing measures to stimulate the economy in his State of the Union address Jan. 28 -- likely, tax breaks targeted at bolstering business investment or consumer spending. Bush met with top economic advisers yesterday and said afterward that "when Congress comes back, I look forward to working with them, to deal with the economic realities of the moment and to assure the American people that we will do everything we can to make sure we remain a prosperous country."

Democrats assailed the administration for being timid. "If there was ever a shot across the bow to this administration to get off its laissez faire boat and start helping the economy, this is it," said Sen. Charles E. Schumer (D-N.Y.), chairman of the Joint Economic Committee.

The weak numbers make it all but certain that the Federal Reserve will try to do its part at its Jan. 30 meeting by reducing the short-term interest rate it controls, which would be the fourth consecutive cut. A week ago, futures markets priced in a 90 percent chance of a rate cut; yesterday that grew to 100 percent.

"Now we're not quibbling over whether the Fed will cut rates; it's a question of how much," Dye said.

The Fed is in a tricky spot as it decides how much to lower rates. Oil prices touched $100 a barrel Wednesday and Thursday, and have risen in recent weeks with prices of other commodities. Lower interest rates would only exacerbate the threat of higher prices.

"The Fed is in the unenviable position of trying to serve two radically different taskmasters," said Bruce McCain, head of investment strategy at Key Private Bank. Fed Chairman Ben S. Bernanke "can't afford to let market psychology and economic psychology of consumers spin out of control. But we are seeing signs of greater inflation."

While economic fallout from the housing sector has spread, there are significant parts of the economy that are adding jobs, which has created a bifurcated labor market. The professional and business services sector added 43,000 jobs and health care added 27,900.

"If you're an IT person in Washington, D.C., or an engineer in San Francisco, you have your choice of jobs," said Tig Gilliam, chief executive of the staffing firm Adecco Group North America. "If you do construction, you're doing to have a hard time finding a job you want."

The data released yesterday underscore that assertion. In the past year, the unemployment rate for professional occupations barely edged up, to 1.9 percent from 1.8 percent. In the construction sector, the jobless rate rose to 9.6 percent from 7 percent.

The impact is particularly hard felt among minorities. The unemployment rate rose 0.6 percentage points in December for blacks and Hispanics, compared to a 0.2 point rise among whites.

There were some one-time factors that influenced the numbers. The Hollywood writers' strike caused the broadcasting sector to lose 11,600 jobs, which presumably will return once the strike ends.

But the numbers overall were dismal enough to send markets swooning, continuing a rough start to the year. The Dow Jones industrial average fell 2 percent, or 257 points, while the Nasdaq composite index recorded an even sharper decline, 3.8 percent. And after three trading days this year, the broad-based Standard & Poor's 500-stock index is off almost 4 percent.