Slump in jobs raises spectre of US recession

Click to follow
The Independent Online

Economics Correspondent

The number of jobs in America fell sharply last month. The shock decline, the biggest since April 1991, provided the clinching evidence that the US economy is slowing and perhaps even heading for recession.

Analysts said there was no longer any question about the Federal Reserve cutting interest rates - it was just a matter of whether it did so at the next policy meeting at the beginning of July or waited until autumn.

The dollar fell sharply on publication of the figures, although it later recovered thanks to fears that the Fed would once again intervene to buy dollars. It took the pound lower, and sterling lost nearly 3 pfennigs yesterday to close at DM2.2370.

Josh Feinman, an economist at Bankers Trust in New York, said: ''The employment report certainly raises the odds that the economy will not pick up again later in the year.''

Further confirmation of the slowdown came from the third successive drop in the US government's index of leading indicators in April.

Robert Rubin, US Treasury Secretary, said the job losses were "a matter of great concern''. Wall Street economist Susan Hering at Salomon Brothers said: ''The intensity of the jobs decline has surprised everyone. Firms are clearly rushing to adjust to lower demand.''

The growing certainty in the financial markets that short-term interest rates will fall took the yield on 30-year US Treasury bonds below 6.5 per cent for the first time in more than a year. One American bank, Southwest Bank in St Louis, cut its prime lending rate from 9 to 8.5 per cent in anticipation of Fed action. Vice-chairman Linn Bealke said: ''Lowering the prime rate will be helpful to our customers, especially those serving the housing and automotive industries.''

Ms Hering predicted that the Fed would cut its key interest rate after the 5-6 July meeting of the open market committee. Others thought it would wait several months. Robert Barrie, an economist at BZW, said: ''The Fed has to judge how long the economy will stay weak and whether there will be any demand to pull the economy around later in the year.''

The fall of 101,000 in employment last month compared to expectations of an increase of about the same size. The weakness in the jobs market spread across the board, although manufacturing and construction were hardest hit.

Manufacturing industry shed 56,000 jobs last month, and construction 57,000. There was a surprise loss of 22,000 government jobs, mainly due to the number of states tackling budget deficits, while 8,000 jobs were lost in retailing.