WASHINGTON — The unemployment rate jumped to 4.5 percent in April, reviving fears of recession as companies shed the largest number of jobs in a decade. The White House stoked that concern, suggesting that economic growth in the first quarter might be less than originally reported.
The Labor Department’s report Friday reinforced worries that rising layoffs might cause consumers to cut back sharply on spending and tip the country into a recession.
“How do you spell ugly? How about horrible? It doesn’t get much worse than this, I hope,” said economist Joel Naroff of Naroff Economic Advisors.
Just a week ago, the government reported that the economy grew at a surprisingly strong rate of 2 percent in the first three months of this year, raising hopes that the darkest days of the slowdown had passed.
But White House spokesman Ari Fleischer said Friday that first-quarter growth might have been slower than that, referring to projections being made by some private economists.
“The president continues to be concerned about the strength of the economy and the slowness in the economy,” Fleischer said. “He believes that the best way to protect the economy and get it moving again is for Congress to take prompt action to pass the budget and to put his tax cut
into place, especially on a retroactive fashion.”
However, Wall Street investors saw a silver lining in the dismal news, believing it raised hopes that the Federal Reserve will aggressively cut interest rates and Congress will provide tax relief. The Dow Jones industrial average gained 154.59 points to finish at 10,951.24, the highest level since Feb. 6.
Some private economists believe first-quarter growth could be revised down a bit, based on expectations of weaker business investment and consumer spending. Others, however, think growth might be a bit stronger.
The government routinely comes out with three estimates of economic growth for a given quarter, each one based on more complete information. The next estimate of first-quarter growth will be released May 25.
But the real concern among private economists is the performance of the economy in the current second quarter. Friday’s employment report for April provided analysts with a critical new piece of information and raised concerns that the worst of the economic slowdown is not over.
“The April employment figures are recession-type numbers,” said First Union economist Mark Vitner. “The economy is losing momentum and ... the odds of recession have increased.”
Last month, 223,000 people lost their jobs, the largest reduction since February 1991, when the country was still mired in its last recession.
It was the second straight month of job losses. In March, 53,000 people were cut from payrolls, which actually was an improvement over the reduction of 86,000 the government had previously reported.
Sung Won Sohn, chief economist at Wells Fargo, said that the promotions, rebates and price cuts that helped to fuel consumer spending earlier this year cut into corporate profits and were now triggering layoffs.
“The bottom line is that a profit recession is leading to a higher jobless rate,” Sohn said.
The big loss in jobs boosted April’s unemployment rate to a 2-1/2 year high of 4.5 percent, a 0.2 percentage-point increase over March’s’ 4.3 percent rate.
“The reaction of consumers to increased layoffs will be critical” in determining whether the country can dodge a recession, warned Lynn Reaser, chief economist for Bank of America Capital Management.
She and other economists are still hopeful that aggressive action by the Fed will keep the economy afloat. The central bank has already cut rates four times this year and economists are looking for another half-point reduction at the Fed’s next meeting on May 15.
April’s employment picture surprised analysts, who had forecasting a smaller 0.1 percentage increase in the unemployment rate.
In Friday’s report, job losses were widespread, although retailers managed to hire 22,000 people, many of them at bars, restaurants and food stores.
Manufacturing, which has been hardest hit by the slowdown, lost another 104,000 jobs last month, pushing total reductions since June to 554,000. Two-thirds of those job losses occurred in the past four months.
Construction companies, which have been adding jobs over the last several months, cut 64,000 jobs in April, possibly reflecting the impact of heavy rains in some parts of the country.
Employment in a variety of business services fell by 121,000 last month. Temporary employment services experienced another sharp decline of 108,000 last month, and have lost 370,000 jobs since September.
There was some good news for workers in the report. Their paychecks continue to grow. Average hourly earnings rose 0.4 percent in April to $14.22 an hour. That matched the gain in March. The length of the average workweek in April was unchanged at 34.3 hours.
On the Net:
Employment report: http://www.bls.gov/news.release/empsit.toc.htm