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Saturday, 4 April 2009

Unrelenting jobless rise imperils US recovery

WASHINGTON (AFP) - - Amid an unrelenting pace of job losses, the US economy faces a race against the clock as it struggles to recover from its worst slump since the Great Depression.

Another hellish month for the US labor market pushed the unemployment rate to a new 25-year high of 8.5 percent with 663,000 jobs axed in March, official data showed Friday.

While some indicators point to stabilizing or modest growth, the key labor market continues to shed jobs massively, potentially derailing any recovery.

Analysts say a recovery will have to take root quickly to steady employment and avert a further slide in an economic abyss.

"The new optimists who have recently been comforted by a smattering of better economic reports were given a dose of reality this morning by the US jobs report, which reminded everybody that an economic recovery is still, at least, a few quarters away," said economist Krishen Rangasamy at CIBC World Markets.

"There are no indications that the US labor market is about to turn for the better over the coming months. Initial jobless claims remain consistently above 600,000, and continuing claims are now closing in on the six million mark. The jobless rate is set to hit 10 percent before the year is out."

The monthly Labor Department snapshot, seen as one of the best indicators of economic momentum, showed widespread losses across most sectors of the economy as the jobless rate rose from 8.1 percent in February.

Some point to the fact that new hiring typically lags other factors in the economic cycle, meaning that the staggering level of job losses are not as bad they appear on the surface.

"We can't find green shoots of recovery in this report -- though it would not be the first place we'd expect to see them," said IHS Global Insight economist Nigel Gault. "The jobs market will follow rather than lead."

Douglas Porter, economist at BMO Capital Markets, agreed that employment will be among the last major indicator to turn the corner.

"First, sales must revive, and then be sustained, then business will try to squeeze more out of remaining employees, then add hours to the workweek, and only then add to payrolls," he said.

"So, even as jobs spiral lower, another broad array of indicators this week suggested that the howling recession winds may be easing a touch."

Porter pointed to improved US auto sales, consumer confidence, and factory data that moved higher "albeit from desperately weak levels."

"Perhaps more important is the sense that aggressive global policy actions are finally gaining traction," Porter said.

The Group of 20 summit, he said "managed to produce some real meat, particularly the hefty increase in IMF resources, which should help contain the economic damage in the developing world."

Since the recession began in December 2007, a staggering 5.1 million jobs have been lost, with 3.3 million in the past five months, the Labor Department said.

Ethan Harris, economist at Barclays capital, said the economy is getting a boost from massive stimulus programs from the US government and central banks, and similar efforts in other countries, but that this may not be enough if joblessness keeps rising.

"With parts of the economy improving but jobs still collapsing, a natural question is whether jobs are merely lagging the rest of the economy," Harris said.

"Households have seen a boost to their after-tax incomes from much lower tax payments and increased transfer payments ... However, the fiscal stimulus will be overwhelmed if the job market does not begin to stabilize in the coming months."

Peter Kretzmer, senior economist at Bank of America said the fact that job losses appear to have peaked in January is a positive sign.

"The losses continue to be severe but we do see, and I think the market sees, some apparent peaking in the rate of decline, and that stabilization is providing a little bit of cheer to the market," he said.

"We've moved to a different phase of the business cycle," he said, with consumer spending steadying but companies still cutting investment and inventories.

This suggests "several more months of severe declines before things start to improve," Kretzmer said.

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