Recession coming...jobs going....

From The International Herald Tribune:

U.S. labor market worsens, sinking Wall Street
By Peter S. Goodman and Michael M. Grynbaum Published: January 4, 2008

NEW YORK: The U.S. unemployment rate surged to 5 percent in December as the nation added only 18,000 jobs, the smallest monthly increase in four years, the Labor Department reported Friday. Economists absorbed the report as the most powerful signal to date that the United States is likely headed for recession.

"This is unambiguously negative," said Mark Zandi, chief economist at Moody's Economy.com. "The economy is on the edge of recession, if we're not already engulfed in one."

The swift deterioration in the job market resonated as a warning sign that troubles once confined to real estate and construction are now spilling over into the broader economy, threatening the ability of American consumers to keep spending with their customary abandon.

Wall Street read the report that way: It triggered a broad sell-off that sent major stock indexes down more than 1 percent.

The lone consolation for investors and workers was that the bad news seemed severe enough to force the Federal Reserve to again cut interest rates when it convenes at the end of this month. Lower interest rates decrease borrowing costs and encourage banks to lend more freely, spurring investment, spending and hiring.

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The Fed has eased rates three times since September in a bid to inject confidence into jittery markets. But analysts cautioned that Fed governors may now feel constraints against bringing rates further down: Inflation is growing as a source of concern, particularly as oil hovers near the symbolic $100-per-barrel level.

Lower interest rates generally increase inflation, and could make an already weak dollar worth less against foreign currencies. That could cause oil producers to demand even more dollars for their wares, exacerbating inflation and constraining economic growth.

"The Fed is trying to juggle a two-sided sword," said Ryan Larson, senior equity trader at Voyageur Asset Management. "They're trying to fight inflation moving higher and they're trying to fight a slowdown in growth," he said, adding: "The Fed is really between a rock and hard place right now in terms ofwhat to do."

Much of the Fed's concern about the health of the economy centers upon a severe shortage of credit: Spooked by mortgage losses and general business uncertainty, banks around the world have gotten tight with their dollars, choking off economic growth.

In an effort to break the logjam and spur the economy, the Fed has been pumping cash through the banking system by auctioning off loans at discounted rates. On Friday, in the wake of the disappointing jobs report, the Fed said it would expand by 50 percent a pair of auctions scheduled for later this month, offering up $30 billion.

For months, the economy has continued to grow vigorously despite a string of worrying developments, from the unraveling of real estate to the turmoil in mortgage markets. Through it all, economists have marveled at the resilience of the labor market, suggesting that if the economy can keep creating work and distributing wages, Americans will maintain the wherewithal to spend, and growth will carry on.

But the December jobs report shot a considerable hole in that scenario, economists said, heightening the likelihood of a recession. The myriad negatives dogging the economy finally appear to be dragging it down.

"There's no mystery as to why the unemployment rate went up," said Robert Barbera, chief economist at research firm ITG. "The mystery is why it took so long."

The addition of 18,000 jobs to the December non-farm payrolls marked an abrupt drop from the 115,000 created in November - a figure revised Friday from an initial estimate of 94,000. It was well below the 70,000 jobs anticipated by economists, and it put the annual rate of job growth at its lowest level since 2004.

Some areas of the economy continued to expand in December. The health care sector added 28,000 jobs, and 381,000 for the year. Food services generated 27,000 new jobs in December.

But that growth was largely overshadowed by the pain in other areas. The retail sector lost 24,000 jobs in December in a disappointing holiday shopping season. Construction shed 49,000 jobs for the month, and financial services lost 7,000.

Despite the weak dollar, which has helped American exports and spawned hopes that sales abroad might compensate for weak business at home, 31,000 manufacturing jobs were lost in December.

"The economy tanked in December," said Ellen Zentner, U.S. macroeconomist at Bank of Tokyo-Mitsubishi. "Domestic demand has slowed, so there's less need for companies to hire."

For the third straight month, wages grew more slowly than the pace of inflation, meaning that many employees saw the value of their income decrease.

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