- The Washington Times - Saturday, January 5, 2008

Unemployment soared to 5 percent last month while job gains nearly ground to a halt, the clearest sign yet that the economy has stalled in the wake of last fall’s housing and credit crisis.

Manufacturers, builders, banks and even retailers laid off more than 100,000 workers at the height of the Christmas shopping season, the Labor Department reported yesterday. Those losses were barely offset by employment gains in education, health, leisure, government and business services, which produced a net increase of just 18,000 jobs.

Job growth for the month and for all of 2007, at 1.33 million, were the lowest since 2003. Outside government, private sector jobs actually shrank by 13,000 in December. The unemployment rate ended the year at the highest level in two years.

Markets tumbled on the dismal job news because it undermines consumer spending growth, which is the foundation for economic growth. The Dow Jones Industrial Average fell 257 points while the dollar lost further ground against other currencies and even oil prices dropped on fears that a slump in the U.S. economy will slow consumption.

“This report raises threats” because of the way it undercuts consumers, said Stephen Gallagher, economist at Societe Generale. “Up to this report, employment gains have been seen as sufficient to support the consumer” and keep the economy afloat.

President Bush, who last year frequently trumpeted the economy’s strength, showed a change of heart yesterday in the aftermath of the shocking jobs report and other recent news showing a sharp weakening of the economy.

“This economy of ours is on a solid foundation, but we can’t take economic growth for granted,” he said after meeting with a White House working group on financial markets.

While Mr. Bush earlier this week said he was not sure the economy needed any stimulus, yesterday he said he would work with Congress on measures “to deal with the economic realities of the moment and to assure the American people that we will do everything we can to make sure we remain a prosperous country.”

Worries about recession have increased in part because of the stalemate between Mr. Bush and the Democrat-led Congress, which has led analysts to doubt they are prepared to cooperate to support the economy in an election year.

Economists expect a slowdown this year in federal defense and domestic spending, which has acted as a prop for the economy, although state and local spending is likely to stay high and keep supporting growth. Robust growth in government jobs last year primarily reflected state and local hiring of teachers, police officers and other personnel.

Job losses in construction, manufacturing and finance, by comparison, are accelerating as the housing and credit recessions deepen. Housing-related jobs in finance and construction fell by 264,000 last year, in contrast to a 388,000 gain at the height of the housing boom in 2005, according to the Employment Policy Institute.

Factory jobs fell by 212,000 last year despite a boom in exports that lifted orders at manufacturers. Layoffs at construction firms mushroomed at the end of the year with the waning of a boom in office, factory and road building that had previously served to offset some lost jobs in housing construction.

Many economists were alarmed by the sharp rise in the unemployment rate last month, which jumped to 5 percent from 4.7 percent. They pointed out that such steep increases in joblessness rarely occur outside recessions.

“What’s most striking here is that the last time we saw the unemployment rate jump by three-tenths of a percentage point in one month was in August of 2001, right smack in the middle of the last recession,” said Bernard Baumohl, managing director of the Economic Outlook Group.

“The swing in the unemployment rate suggests economic activity is in the process of contracting,” he said.

But the silver lining is that the startling jobs deterioration nearly guarantees that the Federal Reserve will cut interest rates aggressively this month to try to avert recession, he said.

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