By Deborah Lagomarsino, Mariko de Couto and Regina Schleiger New York, April 6 (BridgeNews) - The much weaker-than-expected March jobs report raises the odds of the Federal Reserve cutting interest rates before the next scheduled policy meeting in May as the data suggest that the weakness in the manufacturing sector may be spreading out into other parts of the economy, analysts said.
* * * "Based on this (report) the Fed should ease again. It puts heightened pressure on them to move intermeeting," said Stan Shipley, senior economist at Merrill Lynch.
Non-farm payrolls in March fell by 86,000, their biggest drop since November 1991, with declines in nearly all sectors. The manufacturing sector shed 81,000 jobs, the service-producing sector lost 19,000 jobs and retail jobs were down 46,000 in March. Government jobs fell 4,000, while construction jobs rose 12,000.
The March job losses drove the unemployment up to 4.3%, its highest level since July, 1999. Average hourly earnings rose 0.4%, bringing the year-over-year increase to 4.3%. The report was much softer-than-expected as economists had forecast non-farm payrolls to climb by 50,000.
William Griggs of Griggs & Santow said the weakness in the data likely is a surprise to the Federal Reserve and increases the odds of an intermeeting rate cut by the Fed to kick start the economy.
"The payroll number was a surprise," said Griggs.
He identified labor weakness in the service-producing sector of the economy as a concern. The service producing arena includes workers in the retail sector and accounts for about two-thirds of the workforce. "That area has been such a solid player and to see that decline is a bit of a red flag," Griggs said.
Indeed, a number of Fed officials in recent speeches have emphasized that the weakness in the economy has been largely confined to the manufacturing sector. Some officials have emphasized that the main issue for them is whether the weakness in manufacturing spreads into the larger economy.
While Griggs said he doesn't believe the Fed will react to the jobs data alone, "I think it will be a surprise to them."
He said the Fed is like to focus on the softness in the service-producing sector in the March jobs report.
"I think the difficulty the Fed has got is that if we've got additional soft numbers, and because there is a build up in the market in the belief the Fed is behind the curve, the pressure begins to mount" for additional interest rate moves.