U.S. Economy: Employers Cut Most Workers Since 2003

Employers in the U.S. cut the most workers in five years last month, signaling that the economic contraction is deepening and that the Federal Reserve will continue to lower interest rates.

Payrolls shrank by 80,000, more than forecast and the third monthly decline, the Labor Department said today in Washington. The jobless rate rose to 5.1 percent, the highest level since September 2005, from 4.8 percent.

This is the final blow, said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York. It's clear the U.S. economy is in a recession. That's going to shake the confidence of investors and companies across the world and cause people to curtail spending in other countries.

Traders raised bets the Fed will cut its benchmark rate half a point this month after central bankers already enacted the deepest reductions in borrowing costs in two decades last quarter. Officials signaled increasing concern about the economy and credit markets this week, with Chairman Ben S. Bernanke saying for the first time the U.S. may enter a recession.

Financial Markets

Treasuries climbed, with 10-year note yields falling to 3.47 percent at 4:20 p.m. in New York, from 3.59 percent late yesterday. Odds of a half-point rate cut at the Fed's April 29- 30 meeting rose to 40 percent from 20 percent yesterday, futures show. Stocks ended mixed, with the Standard & Poor's 500 Index up 0.1 percent at 1,370.40 while the Dow Jones Industrial Average slipped 0.1 percent to 12,609.42.

Workers' average hourly wages were 3.6 percent higher than a year earlier, the smallest increase since March 2006.

In a sign that investor concern about inflation is diminishing, U.S. debt that adjusts to inflation outperformed regular Treasuries. Regular 10-year notes yielded 2.30 percentage points more than similar-maturity Treasury Inflation Protected Securities, the least since March 27. The so-called breakeven rate reflects the rate of inflation that traders expect for the next decade.

The loss of jobs in February was revised to 76,000 from 63,000. Economists had projected payrolls would fall by 50,000 in March, according to the median of 79 forecasts in a Bloomberg News survey. Economists' forecasts ranged from a decline of 150,000 to a gain of 65,000.

If you're ever going to ring a bell on a recession, these numbers do it, Stuart Hoffman, chief economist at PNC Financial in Pittsburgh said in a Bloomberg Television interview. You have had job losses all year.

IMF Meeting

The job figures come a week before Bernanke and Treasury Secretary Henry Paulson meet their counterparts from the Group of Seven major industrial nations alongside the spring meetings of the International Monetary Fund in Washington.

IMF Chief Economist Simon Johnson said yesterday in a statement that the U.S. economy has slowed to a virtual standstill, hurting global growth prospects. A document featuring IMF forecasts obtained by Bloomberg News this week showed the fund characterized the U.S. financial crisis as the worst since the Great Depression.

Gains in government jobs prevented a deeper drop in payrolls last month as private employers cut 98,000 workers, the fourth straight monthly decline. A survey from ADP Employer Services issued yesterday had projected private payrolls would rise by 8,000.

Labor revisions subtracted 67,000 jobs from the originally reported total figures for January and February. The last time the economy lost jobs for at least three months coincided with the start of the Iraq War in 2003.