US economy loses jobs for first time in four years

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WASHINGTON, Sept 8 (AFP): The world's largest economy was hit with surprise job losses in August as a housing slump and a pullback in home construction triggered increased layoffs, a government report revealed yesterday.
The Labour Department said US employers unexpectedly shed 4,000 jobs in August, marking the first drop in payrolls since August of 2003.
Economists warned the job losses could worsen as banks and mortgage companies slash positions to fend off a broad credit crunch.
The unexpected decline in nonfarm payrolls caught Wall Street off guard, triggering sharp falls on major stock markets. Most economists had expected around 110,000 new jobs to be created in August.
The leading Dow Jones Industrial Average closed down a heavy 1.87 per cent at 13,113.38 points as the job survey dented investor optimism.
"The jobs numbers were about as disappointing as they could be," said Joel Naroff, chief economist at Naroff Economic Advisers.
The employment snapshot raises the odds that the Federal Reserve will slash borrowing costs at a policy meeting scheduled for September 18, partly as it suggests economic growth is slowing.
The brunt of the job losses tracked by the report, viewed as one of the best indicators of economic momentum, occurred in the manufacturing and construction industries.
The national unemployment rate held steady at 4.6 per cent despite the month's job losses.
The Fed is coming under increasing pressure to slash its key short term federal funds interest rate, which has been anchored at 5.25 per cent since June 2006, to bolster growth.
Job growth in the financial sector was flat last month. Analysts said the turbulence sweeping money markets has yet to impact the monthly job report, saying recent layoffs by banking and mortgage firms would be reflected in September and October.
Concern has mounted about the distressed housing market and the multitrillion dollar mortgage sector in recent weeks after several large banks and investment houses revealed hefty losses tied to mortgage-backed securities.
The losses have sparked a credit crunch as banks have tightened their lending standards and cut back mortgage business. Lehman Brothers announced 850 layoffs Thursday as it overhauls its mortgage operations.
Most economists expect the Fed to cut rates, but they are divided on the depth of a potential cut.
Stephen Gallagher, economist at Societe Generale, said he anticipates the Fed trimming rates by 25 basis points on September 18. Others, like Morris, are predicting a sharper 50 basis point reduction.
Some commentators have urged the Fed not to cut rates to bail out troubled banks and investment funds which have sustained mortgage- related losses, but it now appears that the wider economy is suffering from the housing woes.
The manufacturing sector shed 46,000 jobs last month while the construction industry lost 22,000 jobs. A total 28,000 government jobs were also lost, according to the report.
Some of the losses were offset by gains in other industries, particularly in the education and health services sectors which created 63,000 new positions.
The snapshot also showed that average hourly earnings ticked up 0.3 per cent to 17.50 dollars in August, in line with most economists' forecasts.
The government revised down July's hiring pace saying that 68,000 positions had been created that month, instead of the 92,000 initially estimated.
Meanwhile, troubled US mortgage giant Countrywide Financial said yesterday it was planning to cut up to 12,000 jobs in coming months amid a worsening housing slump and a wave of home foreclosures.
Countrywide Financial, America's biggest mortgage company, has seen its business ravaged by falling mortgage demand and an industrywide liquidity crunch sparked by a nationwide housing downturn.
"We are taking decisive action to ensure that Countrywide continues to be well-positioned for further success," Countrywide chairman and chief executive officer Angelo Mozilo said in a statement announcing the job cuts.
The mortgage firm, which borrowed 11.5 billion dollars from 40 banks in mid-August to boost its stressed finances, said it anticipated cutting between 10,000 and 12,000 jobs, or around 20 per cent of its total workforce.
It blamed lower demand for mortgages for the job cuts, but said the actual number of layoffs could be lower if the housing market improves. Most economists say the housing sector is not likely to rebound anytime soon.