U.S. job losses raise fears of economic stall

  @ibtimes on January 08 2010 12:12 PM

Corporate America doesn't seem to have much faith in the economic recovery.

Friday's surprisingly weak employment report, which showed a net loss of 85,000 jobs in December, suggested that companies were in no hurry to re-hire even though the economy resumed growing in the third quarter of 2009 and appeared to generate above-average output in the fourth quarter.

For President Barack Obama, who has made generating jobs a top policy priority, it may pile on pressure for him to propose a more aggressive government spending program aimed at spurring hiring, particularly with congressional mid-term elections looming.

At the tail end of recessions, employment typically remains weak even after the economy recovers. However, many investors and some economists had thought this report would show hiring was finally starting to catch up.

The weak reading raises fresh concerns about the ability of the private sector to sustain economic growth as the government and the Federal Reserve phase out emergency supports.

* The goods-producing sector was the biggest drag, accounting for a net loss of 81,000 jobs. That sector had seen a strong bounce in activity in the third quarter, in part because of the government's Cash for Clunkers program that provided incentives to buy new cars and briefly lifted auto manufacturing.

* Temporary hiring remained one of the strongest areas, continuing a pattern seen in the past couple of months. That suggests companies are not yet convinced that the recovery has staying power and are therefore holding off on hiring full-time workers. However, it also suggests that they may need to soon.

* Some economists also think the preference for temporary workers may reflect employers' concern about the Obama administration's plans for health care reform and what that will mean for labor costs. Temporary workers often do not receive health care benefits.

* Retail employment remained weak, a bit of a disappointment considering that many retailers had reported stronger-than-expected sales for the vitally important holiday shopping season. That segment lost a net 10,000 jobs.

* The steady unemployment rate at 10 percent reflected a sharp decline in the labor force. A survey of households showed the workforce fell by 661,000 in December while a shocking 589,000 jobs were lost. Economists, however, consider the survey of employers a much more reliable indicator of the state of the labor market.

* For the U.S. Federal Reserve, the report points to interest rates remaining near zero for the foreseeable future. The Fed has said it expects employment to remain weak for a long time, which should keep inflation tame.

(Reporting by Emily Kaiser, Editing by Chizu Nomiyama)

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