The US economy suffered a surprise 101,000 jobs drop in December, the government said last week, underscoring gloom among retailers and other employers and raising the political stakes for President George W. Bush as he touts a $674 billion stimulus plan.
The data reassured US bond traders that the Federal Reserve will not be raising interest rates anytime soon and pushed Treasury securities prices higher.
Stocks wavered near unchanged territory as some investors played down the grim jobs news and remained steadfast in their hopes stronger economic growth would finally take hold in 2003. But the dollar plummeted to a three-year low against the euro.
The unemployment rate stayed steady last month at six per cent, despite the steep drop in jobs and a fall-off in worker hours in December, according to the Labour Department's monthly employment report.
The slide in payrolls outside the farm sector - worsened by unexpectedly weak hiring by retailers during the crucial holiday shopping season - was the biggest since February, when the economy shed 165,000 jobs.
"I don't think this means that the economy is falling apart but it certainly provides some justification for the a fiscal stimulus," said Lyle Gramley, a former Fed governor, now with Schwab Washington Research.
The White House said Bush was "very concerned" about the job losses and urged the US Congress to pass his sweeping plan that would eliminate taxes investors pay on dividends and speed up income tax reductions.
"The president views this morning's data as another reason for Democrats and Republicans to work together to get something done," said White House spokesman Ari Fleischer.
For 2002 as a whole, the economy lost a net 181,000 jobs. The past two years marked the first time since the 1950s that the economy lost jobs in two back-to-back years. But in terms of the number of jobs lost, the total over the two-year period was 1.61 million, the worst showing since 1981-82, which was the most severe recession of the post-World War II period, according to economist Ray Stone of Stone and McCarthy Research in Princeton, New Jersey.
"It doesn't look as though job growth is going to get up and go anytime soon," Stone said.
Although the Bush administration pounced on the jobs figures as a reason to pass the president's stimulus proposal, the figures are more likely to add to an already charged political debate about how best to spur growth.
Democrats have denounced Bush's plan as a windfall for the rich that won't offer enough of an immediate kick to economic growth and will swell the federal deficit.
"We still have lingering high unemployment and we have weak payrolls," said Gary Thayer, chief economist at A.G. Edwards and Sons Inc. in St Louis.
"It also suggests the economy could be helped by the economic stimulus plans, either the Democrats' or the Republicans'. Those are both well-timed right now," he added.
December's drop in payrolls was a much weaker performance than the 22,000 jobs gain projected by US economists in a Reuters survey. In a further sign of labor market woes, the Labour Department revised its latest report to show an 88,000 drop in payrolls in November, sharper than the 40,000 decline it initially reported.
The jobs data spurred some chatter in the bond market that the Fed might not be done cutting interest rates.
But most analysts believe the central bank, which chopped the federal funds overnight lending rate to a four-decade low of 1.25 per cent last year, will stand pat at the upcoming January 28-29 meeting and may even nudge rates higher later this year.
Last month's job losses were led by the retail sector. Department stores, toy stores and other establishments curbed hiring amid disappointing sales during the key holiday season, causing a seasonally adjusted 104,000 drop in retail payrolls.
US manufacturers also contributed to the deterioration, with jobs in that sector falling 65,000. Gains in government jobs and in some service-sector industries helped to offset those declines.
The average workweek shrank to 34.1 hours in December from 34.2 hours in November. Average hourly earnings rose 0.3 per cent in December after a 0.2 percent rise in November.
In a sign of the growing concern among politicians about the struggling economy and the lackluster job market, the US Congress passed a measure extending jobless benefits for nearly 800,000 laid-off workers whose payments were cut off last month. It was the first action of the 108th Congress after it convened this week. Bush signed the bill just hours after the House of Representatives approved it.
Not only are more people losing their jobs, those out of work are unemployed longer, according to the data. The average length of unemployment grew to 18.5 weeks in December, the longest period since October 1994. The number of people out of work for 27 weeks or more rose to more than 1.86 million in December, the highest level since February 1993's 1.907 million.