U.S. job losses raise recession worries

In the first such loss in four years, 17,000 jobs were shed in January.

In a worrisome sign, America's job market may be freezing up even in areas far removed from housing or mortgage loans.

In January, stagnation in the economy's giant service sector helped cause the first monthly decline in jobs in over four years.

If the job market is now eroding, it could signal both the onset of a recession and an even more pivotal role for the economy in the presidential election campaign.

Until recently, the job market has been an important bulwark against economic downturn. Home builders and factories have been downsizing, yet employment remained reasonably good elsewhere in 2007. From schools to restaurants and retail stores, employers hired people and didn't lay off too many.

But last month, the hiring all but stopped.

"The big difference between December and January was the service sector – both government and private," says Nigel Gault, an economist at Global Insight, a forecasting firm in Lexington, Mass.

Service employers, who provide the paychecks for more than 8 in 10 US workers, didn't actually lose jobs for the month. But they added just 34,000 new jobs, down sharply from 143,000 in December and well below the four-year average of about 158,000 a month.

The result: After factoring in losses in nonservice industries, the economy overall lost 17,000 jobs, the first monthly loss since August 2003.

The job numbers, released by the Labor Department Friday, are preliminary and will be revised up or down somewhat in the weeks ahead.

Despite this January's decline in business payrolls, the nation's unemployment rate improved modestly, to 4.9 percent after hitting 5 percent in December. Still, the jobless rate has edged up from a recent low of 4.4 percent last March.

But beyond this one monthly report, the job market has been slowly weakening by several measures. The length of the average workweek has edged down. Fewer industries are adding jobs. And even when 12-month average figures are used, the pace of job creation has been cooling off in recent months.

Still, experts are divided over whether this signals the onset of a recession.

"[It's] a much weaker economy ... but it's still not in the territory where you'd say it's fallen off a cliff," says Jonas Prising, president of the North American division of Manpower Inc., a major provider of temporary staffing services. Often in recessions, he notes, monthly job losses total 100,000 or more.

The temporary help industry is often one of the first to feel the effects of an economic slowdown. Instead of a sharp dive in temp employment, which Mr. Prising says is typical heading into a recession, what's occurred in recent months is more a slow slide.

But businesses have become ever more adept at managing their temporary as well as permanent payrolls. So it's possible that old patterns no longer hold.

"It could be that this is a steady slide into a recession," he says. Yet "there's nothing that we've seen today that would tell us that that's actually the case."

Recession or no, the cooling job market symbolizes a changing economic climate for individuals and business alike – and for politics.

It is helping to cast the 2008 election in a different light, with the economy front and center. Ideas on how to help the housing market recover, and how to help the long-term unemployed, promise to get more attention than was anticipated. So will questions of tax policy, and how to ensure a good climate for businesses to create jobs.

Typically, a sour economy hurts the party that holds the White House heading into the election, suggesting a tough road for the Republican nominee.

In the near term, President Bush and Congress are scrambling to craft a temporary tax-relief package to stimulate the economy, and the Federal Reserve has been cutting interest rates.

The weaker job market also affects the way individual workers approach career changes. In St. Paul, Minn., receptionist Kris Melander thought carefully before making a job switch recently. She decided to take a job at an engineering firm, but only after checking about whether the firm's businesses could suffer if the housing slump deepened.

"That was one of my biggest concerns," she says. But "their areas [of business] are not affected by the housing market."

The job market also highlights growing pessimism among business leaders, resulting in less willingness to hire. Fewer businesses want to expand at a time when consumer spending appears to be softening. Many firms also see costs such as fuel rising, even as they have a hard time raising prices for their services.

"A cloud of pessimism has overtaken the business community," says economist Peter Morici at the University of Maryland. "They're no longer willing to hire."

In the 1990 and 2001 recessions, job creation slowed perceptibly, then turned negative once the slump was under way.

The tepid performance of the private-sector was matched by state governments, which shed 24,000 jobs. "Perhaps the budget squeezes are starting to affect hiring," Mr. Gault says. "That is a concern."