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US payrolls fall sharply in March, jobless rate up

The US unemployment rate climbed in March to its highest level since mid-1999 as payrolls logged their sharpest fall in nearly a decade, the government said on Friday in a report that stoked speculation the Federal Reserve could cut rates before its next meeting.

The Labor Department said a total 86,000 jobs were lost in March -- the first time jobs were cut from payrolls since August last year.

The report heightened worry a record 10-year-old economic expansion was losing momentum so swiftly that it was at growing risk of slipping into recession for the first time since a nine-month contraction in growth in 1990-91.

"The economy is sinking, sinking faster," Robert Brusca, chief economist for Ecobest Consulting in New York, told Reuters Television. "It's a lot of weakness and I would really be looking for the Fed to make an intermeeting move (to lower interest rates)."

The bleak economic report drove down stock prices while sending bond prices higher.

The loss of jobs in March was the steepest for any month since 94,000 were slashed in November 1991, not long after the last recession had ended and while doubts were still lingering whether that downturn was over. A recession is generally defined as two straight quarters of economic contraction.

The payrolls performance stood in sharp contrast to economists' expectations of a gain of 58,000 jobs and was much weaker than the revised 140,000 jobs created in February.

As payrolls fell, the U.S. unemployment rate rose, edging up to 4.3 per cent from 4.2 per cent in February. The last time the rate was that high was in June and July 1999, when it also stood at 4.3 per cent.

"I don't know whether it will be in the next couple of days, but this adds to and brings more force to the argument for an intermeeting rate cut," said Carol Stone, deputy chief economist of Nomura Securities International Inc. in New York.

The next scheduled meeting of the Fed's policy-setting Federal Open Market Committee is on May 15. But one of its three interest-rate cuts so far this year was an intermeeting move and the central bank has served notice that it is closely monitoring the economy.

Despite the loss of jobs last month, average hourly earnings rose 0.4 per cent to $14.17 from $14.11 in February. That was a potentially troubling sign for Fed policymakers who are trying to stimulate economic activity while keeping a wary eye on inflation risks.

US bond prices climbed after the jobs report was issued as investors sought safer haven for their funds amid fears the economy might be at graver risk than previously thought.

Stock prices dropped sharply at the opening of trading, giving up some of Thursday's strong gains on concern a weaker economy meant reduced corporate profits.

Speaking at a manufacturing conference in Washington, Dallas Federal Reserve Bank President Robert McTeer said national output was still expanding. "We are still above zero in this economy," McTeer said, which would mean the record-long expansion was intact.

Bureau of Labor Statistics Commissioner Katharine Abraham noted that jobs in the service industry -- usually an engine of employment growth -- edged up only 11,000 in March, which she said largely reflected the release of temporary workers.

"The unusually small net gain reflected the sharp decline of 83,000 in help-supply services, an industry comprised largely of temporary help firms, which provide workers to other businesses, including those in manufacturing," she said.

There were widespread signs of developing labor market weakness.

"Another sign of labor market softness is the recent increase in the number of unemployed job losers who did not expect to be recalled to their jobs," Abraham said. That number has risen by more than 250,000 to almost 1.9 million in the first three months of this year.

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