Job shock: U.S. lost 17,000 in January; unemployment rate slips to 4.9%.

Job shock: U.S. lost 17,000 in January
Employers trim payrolls, as government report shows first drop in four years; unemployment rate slips to 4.9%.

By Chris Isidore, CNNMoney.com senior writer
February 1 2008: 4:18 PM EST
NEW YORK (CNNMoney.com) --

Employers trimmed jobs from their payrolls in January, according to a government jobs report Friday that showed the first decline in employment in four years. That raised new concerns about the risk of recession for the weakening U.S. economy.

There was a net loss of 17,000 jobs in the month, according to the Labor Department reading. That was partly balanced by a sharp revision higher for the December reading to a gain of 82,000 jobs from the original reading of only an 18,000 increase.

Economists surveyed by Briefing.com had looked for a gain of 70,000 jobs for January.
The figures showed January as having the first decline in payrolls since August 2003. But the drop was based on the preliminary reading, which is subject to revisions. There have been a few months in the last four years, including August 2007, when the preliminary payroll reading showed a decline was later revised to a gain.

The unemployment rate slipped to 4.9%. Economists had forecast it would remain at the 5% rate reported for December. The drop in the unemployment rate, which is based on a different survey than the one used to calculate U.S. payrolls, was partly due to updated population figures used at the start of the new year.

Rising recession fears

Despite the upward revision in the December payroll reading and the slight decline in unemployment, there was more weakness than strength in the report. The government made its annual revision to all 2007 employment readings and found a 191,000 drop in jobs, even with the big adjustment higher in December.

The report also showed the average hours worked in the private sector declined in January to 33.7 hours from 33.8 in December. That drop, coupled with only a narrow 4-cent gain in the average hourly wage, resulted in the first drop in weekly wages since April.

The weakening state of the labor market has become a growing concern for economists, policymakers and Wall Street in recent weeks, as well as the general public.
Federal Reserve cited evidence of a "softening in labor markets" when it announced both of its rate cuts late last month. Congress is rushing to pass a $150 billion stimulus package that the Bush administration said should add 500,000 jobs to the economy.

President Bush, speaking to employees of Hallmark Cards in Kansas City, Mo., said the employment report is a reason that Congress needs to act quickly on the proposed stimulus package.

"The sooner we can get money into our consumers' hands, the more likely it is that this economy will recover from this period of uncertainty," he said. "The fundamentals are strong, we're just in a rough patch, as witnessed by the employment figures today."
"I'm confident we can get through this rough patch," he added.

Some leading Democrats were quick to seize on the jobs report as a sign that the administration needs to do more about the economy.

"This report underscores why it is absolutely critical that we include in any stimulus package extended unemployment insurance for those who are losing their jobs and looking for work in our ailing economy," said a statement from Sen. Hillary Clinton, one of the two leading Democratic presidential candidates. "We need more than tax rebates and business incentives to fix our ailing economy."

Sen. Charles Schumer, D-N.Y., chairman of the Joint Economic Committee of Congress, said at a panel hearing that "any doubts that we are heading into a recession should be erased with today's employment report."

"I'm concerned that the last few years of lower-than-expected job growth will look good compared to the job shrinkage we may well see in the coming months," he added.
Testifying at the hearing, Keith Hall, the commissioner of the Bureau of Labor Statistics, agreed that the employment situation is worrisome to the overall economy.

"We have seen job losses fairly widely spread," he said. "We've had periods like this before. We don't want this to continue."

Will Fed step in again?

Still, some economists say after cutting interest rates by 1.25 percentage points in just the last two weeks, the Fed is unlikely to take any immediate action to boost the economy, even with this new sign of weakness. The central bank's policymakers will have another employment report to consider before they next meet March 18.

"I do not think this report compels the Fed to do anything," said economist Robert Brusca. "The Fed has eased a lot. Monetary policy works with a lag. The Fed knows weak data will continue for a while after its cuts. It will need to see something much weaker than this to get itself hopped up for another rate cut."

Other economists said they do expect the Fed to resume making cuts at its upcoming meetings.
"I think we're seeing some actual job loss. I'm not surprised by the number," said David Kelly, chief market strategist for JPMorgan Funds. "There is weakness in the payroll numbers and we're wobbling on the edge of recession."

"But America is not overstaffed today," he added. "That should limit job losses in the future."
Wachovia senior economist Mark Vitner said he doesn't believe the economy will fall into recession, but he conceded there is weakness in hiring. But he said it's more a matter of businesses not hiring than making steep job cuts.
"There's no question businesses are more cautious in their hiring plans," he said.

That view was echoed by Jeff Kaye, CEO of executive recruiter Kaye Bassman International.
"I don't think we're heading to layoffs other than the obvious sectors that are being pounded," he said. "But we're seeing companies on hold on hiring; they're in a wait-and-see posture to see what happens with economy."CNNMoney.com staff writer David Goldman contributed to this report