Washington, March 7 (Bloomberg) -- The U.S. last month lost the most jobs since after the 2001 terrorist attacks as the economy stumbled amid a growing threat of war with Iraq. The unemployment rate rose to 5.8 percent. Payrolls plunged 308,000 in February, four times the lowest estimate in a Bloomberg News survey of 65 economists, Labor Department figures showed. Employment fell at manufacturers, construction companies and retailers. Unemployment rose from 5.7 percent, approaching an eight-year high, and hours worked fell. ``This is an indication of an economy that is close to dead in the water,'' said Peter Hooper, chief U.S. economist at Deutsche Bank Securities, who had forecast a 75,000 decline in payrolls. ``It's going to continue to look weak until geopolitical uncertainties are resolved.''
Job creation is at the heart of household spending, which accounts for more than two-thirds of the economy, and 366,000 positions have been eliminated in the last six months. Federal Reserve policy makers may be closer to lowering interest rates to shore up sagging consumer confidence and growth that's proved uneven, economists said. ``The Fed will have to cut rates if it looks like a double- dip recession is inevitable, and it's beginning to look more convincing,'' said Chris Low, chief economist at FTN Financial. President George W. Bush's administration said the report adds evidence that Congress should pass his tax-cut plan. The program would ``give our economy a much needed boost and help Americans find work,'' Treasury Secretary John Snow said.
Below Forecasts
Economists had expected payrolls to rise by 10,000 last month following an increase of 185,000 in January, based on the median of 65 forecasts in a Bloomberg News survey. No economist expected payrolls to decline by more than 75,000. Snowstorms along the East Coast, a terrorist alert and reservists called for armed services duty in the Middle East may have also depressed payrolls, economists said. U.S. Treasury securities rose, while stocks fell after the report. Stocks pared declines on reports the U.S. had narrowed the search for al-Qaeda leader Osama bin Laden and that his sons had been arrested. The benchmark 10-year note rose 1/4 point and pushing down the yield 3 basis points to 3.62 percent.
The Dow Jones Industrial Average fell 43 points, or 0.6 percent, while the Standard & Poor's 500 Index declined 3 points, or 0.4 percent, at 10:37 a.m. New York time. The implied yield on the May federal funds futures contract fell to 1.08 percent, its all-time low, and below the current 1.25 percent target for overnight bank lending. Central bankers next meet on March 18. ``The weather and the terrorist alert play a role here, but I'm not sure that matters,'' said Low. Still, ``you had those declines in payrolls in November and December.''
Service Jobs Drop
Employment in service-producing industries, which include retailers, banks and government agencies, plunged by 204,000 last month, the biggest decline since November 2001, after rising 166,000 the previous month. Retailers dropped 92,000 positions, and other services such as restaurants and building maintenance lost 86,000. Construction employment fell by 48,000 in February after rising 26,000 a month earlier. Retail jobs declined by 92,000. Manufacturers eliminated jobs for the 31st straight month. Factories dropped 53,000 jobs last month, after cutting 4,000 the month before. The manufacturing workweek held at 40.8 hours, and overtime rose to 4.2 hours from 4.1 hours. Agilent Technologies Inc., a maker of computer chip and telecommunications testing gear, said it will cut 4,000 jobs, or 11 percent of its staff, after reporting its biggest quarterly loss because of falling demand.
Companies Cut Jobs
The drop in demand ``is really accentuated now by all the uncertainty in the world, the uncertainty with the economy, the uncertainty over terrorism and a potential war,'' said Edward Barnholt, Agilent's chief executive officer, in an interview with Bloomberg Television last month. The payroll total may have been depressed by the activation of civilian workers for military duty. The U.S. ordered 91,358 reservists to mobilize from mid-January to mid-February, accounting for more than half of the 150,252 called up by Feb. 12, the week when the Labor Department conducted its payroll survey. The government instructed companies to exclude from their payroll counts workers called up to serve in the armed forces because they are no longer in the civilian labor force. The worst Northeast snow storm in seven years may have led to a drop in hours worked. Average weekly hours worked declined to 34.1 from 34.3 in January, today's report showed. Economists had expected hours would hold steady at the previously reported 34.2 hours, the Bloomberg survey found.
Discouraged Job-Seekers
The Labor Department also said the percentage of the U.S. population holding jobs held at 63.2 percent in February. The number of discouraged workers, those no longer looking for work because they thought no jobs would be available and who therefore weren't counted as unemployed, rose to 450,000 last month compared with 375,000 in February 2002. The number of discouraged workers isn't adjusted for seasonal factors. A bright spot in today's report showed rising incomes. Workers' average hourly earnings rose 0.7 percent, or 11 cents, in February, after a 0.1 percent decrease the previous month. ///www.quote.bloomberg.com