War fears spur job cuts, pushing unemployment numbers higher

WASHINGTON -- Businesses unexpectedly slashed more than 300,000 jobs last month in the largest cuts since the terrorist attacks, pushing the unemployment rate higher as the nation moved closer to war.

Economists warned that February's widespread job losses signal a frail economy in danger of toppling back into recession.

The civilian jobless rate reached 5.8 percent, up a tenth of a percentage point from January, the Labor Department reported Friday.

Economists had predicted the modest rise, but they were blindsided by the hemorrhaging of jobs that wiped out large hiring gains in January.

"It's a very dark report," said Mark Zandi, chief economist at Economy.com. "The economy is flat at best and arguably is sliding back into recession."

On Wall Street, the report sent stocks sliding in early trading before bouncing back. The Dow Jones industrial average closed up 66 points and the Nasdaq gained 2 points.

Worries about war, coupled with last month's terror alert increase and harsh winter weather, all contributed to February's jobs loss of 308,000, economists said. Another possible factor was the activation of military reservists, though Labor Department officials were unable to quantify the impact.

It was the biggest monthly decline since November 2001, when companies purged 327,000 from their payrolls following the attacks on the World Trade Center and Pentagon. Apart from the attacks, the cuts were the largest since January 1982.

"What worries me the most is a slip backward becoming a spiral downward," said Bill Cheney, chief economist at John Hancock Financial Services. "Jobs are the linchpin of both consumer confidence and consumer spending. We can't sustain many more losses like this without that downward spiral getting started."

Nearly 2 million jobs have been lost in the United States since hiring peaked in March 2001.

In February alone, 8.5 million people were unemployed, a 2.8 million increase since fall 2000.

The number of long-term jobless tripled during this period. About 1.9 million people have been jobless for 27 weeks or more, comprising 22 percent of total unemployment.

"It's now clear that the problem is reaching more deeply and broadly into all corners of the labor market while jobs disappear in alarming numbers," said Maurice Emsellem, public policy director for the National Employment Law Project. He urged Congress to pass a second federal extension of unemployment benefits to help the long-term jobless. The current extension will expire in May.

President Bush has proposed spending $3.6 billion to create "re-employment accounts" of up to $3,000 for people about to run out of unemployment benefits. That money could pay for child care, transportation or job training to help people find work.

White House spokesman Ari Fleischer said the report should serve as an "important reminder" to Congress that Bush's tax cuts, totaling $1.46 trillion over the next decade, need to be passed. Fleischer acknowledged that the prospect of war has slowed down the economy.

Labor Secretary Elaine Chao said the jobs report was "unexpected and disappointing," but added that Bush's stimulus package could generate 1.4 million new jobs, based on White House estimates.

Businesses have been wary of making long-term hiring and spending commitments as the economy struggled toward recovery. Now that the country is gearing up for war, employers are even more cautious, quashing hopes for improvement in the jobs market any time soon.

It was that same climate of uncertainty that dampened business confidence in the wake of the Sept. 11 terrorist attacks and soured job prospects for the unemployed.

Until the Iraq conflict is resolved, economists don't expect any consistent hiring by companies. "I think that's going to swing it," said David Wyss, chief financial economist at Standard and Poor's. "As long as we see continued problems over there, I don't see people climbing out of their holes."

Some economists think the dismal jobs report could prompt the Federal Reserve to lower a key interest rate from the current 41-year-low of 1.25 at its meeting on March 18 or in June.

The job losses were concentrated in the services sector, which usually is the engine of job creation in the United States. Payrolls plunged by 204,000 last month, mostly because of cuts in retail and transportation. Manufacturing employment also continued to decline.