U.S. Economy Suffers Another Body Blow

unemployment graphic AP / CBS

Nervous employers cut 17,000 jobs in January - the first such reduction in more than four years and a fresh trouble sign that the U.S. economy is in danger of stalling.

The Labor Department's report, released Friday, also showed that the unemployment rate dipped slightly to 4.9 percent, from 5 percent, as the civilian labor force shrank slightly.

"It's very unusual for the economy to lose jobs, said Mark Zandi, chief economist at Moody's economy.com. "It only happens during recession," he told CBS News correspondent Anthony Mason. "So the fact that we lost jobs is very symbolic and suggests that the economy is in recession."

Job losses were widespread. Manufacturers, construction firms and a variety of professional and business services eliminated jobs in January - reflecting the toll of the housing and credit debacles. The government cut jobs, too. All those cuts swamped job gains in education, health care, retailing and elsewhere.

Wage growth also slowed, another indication that employers are tightening their belts amid the economic slowdown.

President Bush called Friday's negative job report "troubling," saying it ends a 52-month streak of job growth.

"Inflation's low. Productivity's high, but there are certainly some troubling signs, serious signs that the economy is weakening and that we've got to do something about it," Mr. Bush said.

He prodded Congress to pass an economic stimulus package that had been negotiated by House Democrats and Republicans but which is under the microscope in the Senate as members seek to expand the pool of Americans eligible for tax rebates and other economic relief.

Although the unemployment rate declined a notch, from 5 percent in December to 4.9 percent in January, the jobless rate - calculated from a different statistical survey than the payroll figures - dipped as people left the labor force for any number of reasons.

Taken together, the figures suggested that employers have grown cautious as they try to cope with fallout from housing and credit problems and rising worry about the ailing economy.

Mason spoke to one of those employers, Zachary Mottl, at Atlas Tool outside Chicago.

"We don't want to lay people off," Mottl told him. "We don't want to lay off the new guys we just hired - I care for their families. But if it slows down, you gotta make tough decisions."

Economists were predicting employers would boost payrolls by around 70,000, and that the unemployment rate would stay at 5 percent.

Fears of a recession have grown.

The White House and Congress are working to enact a package to stimulate the economy. And, the Federal Reserve has gotten much more aggressive - ordering two big interest rate reductions in just over a week.

A severely depressed housing market, hard-to-get credit, turbulence on Wall Street and "some softening in labor markets" were cited by the Fed, when it lowered rates by a bold half point on Wednesday.

The unemployment rate had shot up in December to 5 percent, from 4.7 percent in November. The magnitude of that increase - something not seen since right after the September 2001 terror attacks - sent off alarm bells. In the past, such a big increase in the jobless rate signaled the economy was starting a recession or already in one.

The health of the U.S. job market is a critical factor shaping how the overall economy fares. Until now, job and wage growth have helped cushion people from the negative forces coming from the housing bust and credit crunch. If companies continue to cut back on hiring and put a lid on wages, though, that will spell more trouble for the economy.

Workers saw wages grow at a slower pace last month.

Average hourly earnings for jobholders rose to $17.75 in January, a 0.2 percent increase from the previous month. Economists were predicting a slightly larger gain of 0.3 percent. Over the last 12 months wages went up by 3.7 percent. With high energy and food prices, though, workers may feel squeezed and feel like their paychecks aren't stretching that far.

The 17,000 drop was in total payrolls - both government and private employers - in January. The government sliced 18,000 positions, while private employers added just 1,000 jobs.

The drop in payrolls marked a significant deterioration in employment conditions. In December, employers added 82,000 new jobs. January's decline was the first since August 2003, when the labor market was still struggling to recover from the 2001 recession.

The government on Friday also released annual revisions - based on more complete information - to its payroll data. Those revisions showed job creation was even weaker last year than initially thought.

The economy added an average of just 95,000 jobs per month in 2007, versus an earlier estimate of 111,000 a month for the year. In 2006, payroll employment grew by an average of 175,000 a month.

Construction and factory workers have been especially hard hit by the meltdown in housing and other troubles in the economy.

In January, construction companies cut 27,000 jobs, with most of the decline concentrated in housing. The construction industry has lost a total of 284,000 jobs since its employment peak in September 2006.

Factories eliminated 28,000 positions in January, and have cut 269,000 jobs over the last 12 months.

The economy nearly stalled in the final three months of last year, and some economists believe it may actually be shrinking now.

Under one rough rule, the economy would have to contract for six months in a row for the country to be considered in a recession. The likelihood of a recession has risen sharply over the past year, and analysts increasingly believe the U.S. will be in one during the first half of 2008. The worry is that people and businesses will hunker down and pull back their spending, sending the economy into a tailspin.
© MVIII, CBS Interactive Inc. All Rights Reserved. This material may not be published, broadcast, rewritten, or redistributed. The Associated Press contributed to this report
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