Weak job growth fuels US recession fears

WASHINGTON (AFP) - The US economy succumbed to housing and credit troubles in December as just 18,000 jobs were added and the unemployment rate rose to 5.0 percent, data showed Friday, highlighting fears of recession.

Private-sector employment shrank in the month for the first time since 2003, with the report barely positive on a gain in government jobs, according to the Labor Department's nonfarm payrolls report.

The survey, seen as one of the best indicators of economic momentum, showed a sharp decrease from November, which had job gains of 115,000, revised up from an initial estimate of 94,000.

The overall unemployment rate rose from 4.7 percent in November.

The report showed the smallest number of jobs created since August 2003 and the highest unemployment rate since November 2005, in the wake of Hurricane Katrina. Analysts had expected on average a gain of 70,000 jobs and a jobless rate of 4.8 percent.

The report is the "strongest evidence so far that the economic expansion is grinding to a halt," said Peter Morici, an economist at the University of Maryland.

"The Federal Reserve will aggressively cut interest rates to combat the US slowdown. However, these efforts may prove insufficient to head off a difficult recession."

The report came amid an intense debate among analysts on whether the US economy was headed for recession as a result of the meltdown in housing and its impact on the finance sector, which has led to a credit squeeze.

"This does suggest things are weak," said Scott Brown, chief economist at brokerage firm Raymond James.

Brown said the report suggests a slowdown in economic growth to around 1.0 to 1.5 percent in the fourth quarter but not yet a contraction.

"You're still looking at positive job growth overall. You're getting closer to a recession (but) I still think we'll see better growth" in the coming months.

Brown said the weakness "is concentrated in manufacturing and construction and it's still a question as to whether the housing weakness will drag the overall economy down."

Robert Brusca at FAO Economics said the decline in private-sector jobs is especially troubling.

Brusca said the Fed, which has already cut short-term rates by a full percentage point since September, may have to do more to stimulate a flagging economy.

"Look for more aggressive Fed rate cuts," he said.

"When unemployment rises by more than 0.5 percentage points from its cycle low a recession generally ensues. The economy has now performed that trick."

Stephen Gallagher, economist at Societe Generale in New York, said the report ends a streak of relatively healthy job growth that had cushioned the economy against the impact of credit and housing troubles.

Gallagher said the economy could be headed for trouble if the problems in several sectors dent consumer spending, which accounts for two-thirds of gross domestic product.

"Up to this report, employment gains have been seen as sufficient to support the consumer," Gallagher said. "This report raises threats."

December's gain was far below the 111,000 average monthly rise in 2007 and just a fraction of the more than 100,000 estimate of the number of new jobs the economy needs to keep up with new entrants to the workforce.

Service sector jobs increased 93,000 jobs, while government jobs increased by 31,000.

But these gains were offset by steep losses in the goods producing sectors. Construction employment declined by 49,000, while factory jobs fell 31,000.

While the overall service sector gained jobs, the retail sector fell by 24,300.

Average hourly wages rose 0.4 percent in December to 17.71 dollars, suggesting wage-based inflation pressures remain. Average hourly earnings have increased 3.7 percent in 2007.