Job Losses Point to Potential Recession

by Amy Lillard

This year has been a year of ups and downs for the housing market. In our continuing series, we chronicle news affecting the housing market and its major players.

A report issued by the Labor Department last week shows that employers have cuts jobs for the first time in four years, raising new fears of the extent of the housing slump and credit crunch.

The report showed the nation's payrolls shrank by 4,000 in August, the first decline in jobs since August of 2003. Job losses in construction, manufacturing, transportation and government overwhelmed the gains in education and health care, leisure and hospitality and retail.

Employers are hiring less, this report shows, due to uncertainty about the country's economic health. The suffering housing market, along with credit problems that have sparked fear on Wall Street and throughout global markets, are driving this trend. Many analysts think this new data and the atmosphere of uncertainty could push the economy into a recession.

These new employment figures are the first to show the effects of the housing slump on the job market. Up to this point, the job market has held steady. But this summer's credit problems that have spread from subprime loans throughout the economy has finally pushed the stress to employers.

The 4,000 net jobs cut in August are a sum from both private and government employers. The government cut 28,000 jobs while all private employers added 24,000, the fewest since February 2004.

These figures don't count projected layoffs of key employers announced in the last months. It does not include the 12,000 jobs Countrywide Financial announced it would cut last week, nor does it include the 1,000 jobs IndyMac Bancorp will lay off in the next several months, or the layoffs announced by National City Corporation and Lehman Brothers. The latest cuts are on top of nearly 31,000 layoffs reported by financial services companies in August.

To stave off a potential recession, pressure is building on the Federal reserve to lower interest rates. Many believe these recent figures, which point to a deteriorating employment climate, will result in the Fed cutting the key interest rate by at least one-quarter percentage point on their September 18 meeting. The Fed has not lowered this rate in four years.