US loses jobs at fastest rate in 5 years

US employers cut more jobs in March than at any other time in the past five years, reinforcing the view that the US is in recession and raising fears about consumer spending.

The weaker-than-expected figures and a jump in the unemployment rate will maintain pressure on the Federal Reserve to cut interest rates by 50 basis points at its next policy meeting, even though policy-makers remain concerned about inflation.

Non-farm payrolls dropped 80,000 last month, the third consecutive month that the labour market has contracted and the steepest drop since March 2003. The market was expecting the loss of about 50,000 jobs.

The Bureau of Labor Statistics also revised upwards its estimate of job losses in January and February. The figures show the US has lost between 76,000 and 80,000 jobs every month since the start of this year and 232,000 jobs during the quarter.

Meanwhile, the unemployment rate rose from 4.8 per cent to 5.1 per cent in March, suggesting growing slack in the economy.

John Ryding, chief US economist at Bear Stearns, said: “This magnitude of a rise in the unemployment rate has never occurred in the postwar period without the economy being in recession.”

But the size of the job losses was not large by the standards of past recessions and, surprisingly, hours worked moved up.

Michael Feroli, an economist at JPMorgan, said it was consistent with a “mild start to a recession”.

US companies did not add as many workers during the previous upswing as they did in past cycles, suggesting that they may not be as quick to shed workers during the downturn.

Stocks fell after the jobs report was released but regained their losses in afternoon trading. The dollar retreated against the euro and the yen and US Treasury notes rallied.

The rise in the jobless rate was not altogether surprising because initial claims for unemployment benefits have recently been on an upward trend. First-time jobless claims this week rose above 400,000 for the first time since September 2005.

“Today’s jump in unemployment to 5.1 per cent may well be a harbinger of things to come,” said Michael Woolfolk, senior currency strategist at the Bank of New York Mellon.

March job losses were concentrated in the construction (–51,000), manufacturing (–48,000) and employment services (–41,800) sectors.

A succession of job losses could force the US economy into a more serious downturn as consumers cut back on spending, sapping economic growth.