Newspaper article The Christian Science Monitor

As Layoffs Spread to Services, Economic Outlook Dims

Newspaper article The Christian Science Monitor

As Layoffs Spread to Services, Economic Outlook Dims

Article excerpt

Hope that the economy has bottomed out may be premature. Instead, it now looks as if all the layoffs in April will drag the economy still lower, almost certainly prompting the Federal Reserve to slash interest rates again.

That's the conclusion economists are drawing from a Friday report showing unemployment shooting up to 4.5 percent, while the number of jobs actually fell by 223,000, the worst performance since the recession of 1991.

April is the second consecutive month that the US job machine has sputtered. Two monthly drops are rare, out of recession, says Mark Vitner, an economist at First Union Bank in Charlotte, N.C. Three- quarters of the time, he says, it signals the onset of a recession.

Layoffs are still rampant in the manufacturing sector, which has lost more than 100,000 jobs each of the past five months. "Business is reacting to the profit squeeze by reducing payrolls," says Richard DeKaser, economist at National City Corp., a bank in Cleveland.

Moreover, the layoffs are spreading to services. For example, employment declined in April for hotel and tourist attractions - a bad sign for the summer. This might drag down employment in May, some predict.

Yet, despite the bad news, some economists still don't think the nation will slip into recession. Only two weeks ago, many thought the economy had bottomed out when the government reported that it grew at a faster-than-expected 2 percent annual rate in the year's first three months. Although that number is likely to be reduced once more information is available, it's not expected to slip into negative territory. On the basis of the unemployment numbers, economists say the economy is currently growing by less than 1 percent, if at all.

"The economy is at the edge of the door of recession, but has not walked through yet," says Stuart Hoffman, chief economist for PNC Financial Services Group in Pittsburgh.

Economists now expect the Federal Reserve to lower interest rates by a half percentage point when it meets on May 15. …

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