Weak Jobs Report Caps a Worrisome Week

The threat of a more severe slowdown in the economy continues to rise as Americans face some new signs that the job market is starting to cool amid slower growth and ongoing troubles in the housing and financial markets.

Today's latest jobs report shows the United States lost 17,000 jobs in January, a far cry from a 70,000-job gain forecast by Wall Street. Some revisions to December's poor report helped soften the blow, and the unemployment rate, based on a separate survey of households, slipped to 4.9 percent from 5 percent in December. Annual revisions to last year's employment figures looked weaker, too. The economy added an average of just 95,000 jobs a month in 2007, down from earlier estimates of 111,000.

"We're starting 2008 with a low amount of momentum," says Alan Gayle, chief investment officer at Trusco Capital Management. "The overall report is obviously disappointing. It'll feed fears of a more serious slowdown."

Unsurprisingly, some of the steepest job losses came in the housing and factory sector. Construction jobs shed 27,000, while manufacturing jobs fell by 28,000. Most industries showed slower job growth, with only a few—education and healthcare—posting a solid increase. Cracks in service sector job growth are especially worrying, given its long resilience in the face of slower economic growth.

The report caps off a week full of worrying economic news. This week's look at consumer spending showed shoppers less willing to spend in the face of high energy prices and another move up in inflation. The first look at fourth-quarter growth showed that the economy expanded by just 0.6 percent in the fourth quarter, a far cry from a 4.9 percent rise in the third.

Meanwhile, the report also backs the Federal Reserve reaction to real softness in labor markets cited as a reason for steep rate cuts. The Fed shocked markets late last month by slashing rates by a point and a quarter over just eight days.

Researchers at Global Insight said that while the latest data point more toward recession, it's not yet clear how bad the current economic slump will get. But "we should expect to see more bad news on the labor market—at least through the middle of the year—before the heavy doses of monetary and fiscal stimulus begin to kick in."

Wall Street opened higher today despite weak data, thanks to the news that Microsoft made a whopping $44.6 billion offer for Yahoo! as it attempts to take on Google in the Internet search and advertising field.