WASHINGTON : The world's largest economy was hit with surprise job losses in August as the housing downturn and a credit crunch sparked increased layoffs, a government report revealed Friday. The Labour Department said US employers unexpectedly shed 4,000 jobs in August, marking the first drop in payrolls since August of 2003.
The unexpected drop in nonfarm payrolls caught Wall Street off guard as most economists had been calling for around 110,000 new jobs to be created in August.
Economists said the report raises the odds that the Federal Reserve will soon move to slash borrowing costs.
The job report, viewed as one of the best indicators of economic momentum, suggests the US employment market has been jolted by a housing slump and rising mortgage defaults which have triggered a credit squeeze that has roiled financial markets.
The national unemployment rate held steady at 4.6 percent despite the month's job losses.
The report was released as the US central bank prepares to meet on September 18 to mull US interest rates amid increased scrutiny.
Calls are mounting for the Federal Reserve to cut borrowing costs. Its key federal funds rate has been anchored at 5.25 percent since June 2006.
"Today's employment report and the revisions are enough to justify several interest rate cuts by the Federal Open Market Committee," said David Kotok, chairman and chief executive officer at Cumberland Advisors.
Ian Morris, chief US economist at HSBC North America in New York, agreed that the Fed would be minded to cut rates.
"The numbers were obviously pretty weak. So I think in the context of what is going on in money markets, it solidifies our expectation of a 50 basis point cut by the Fed on September 18," Morris said.
Other commentators, however, have said the Fed should not cut rates to bail out troubled banks and investment funds which have sustained hefty losses tied to risky mortgage-backed securities.
And economists who anticipate a rate cut are divided on how much the Fed might trim borrowing costs.
Stephen Gallagher, an economist at Societe Generale, said he is only expecting the Fed to cut rates by 25 basis points at this month's meeting.
Nonetheless, many economists and financial market analysts say it is likely that US economic growth will slow in coming months, partly as the housing market is not expected to improve any time soon.
"It is clear from this report and from the other reports on the labour markets that the employment situation in the United States is worsening and the pace is accelerating," Kotok said.
Job cuts in the manufacturing and construction industries accounted for the lion's share of August's employment losses.
The manufacturing sector shed 46,000 jobs last month while the construction industry lost 22,000 jobs. A total 28,000 government jobs were also lost, according to the report.
Some of the losses were offset by job gains in other industries, particularly in the education and health services sectors which created 63,000 new positions.
The snapshot also showed that average hourly earnings ticked up 0.3 percent to 17.50 dollars in August, in line with most economists' forecasts.
The government revised down July's job numbers saying that 68,000 new positions had been created that month, instead of the 92,000 initially estimated. - AFP /ls
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