The New Nation - Internet Edition

AFP, Washington

The world's largest economy was hit with surprise job losses in August as a housing slump and a pullback in home construction triggered increased layoffs, a government report revealed on Friday. The Labor Department said US employers unexpectedly shed 4,000 jobs in August, marking the first drop in payrolls since August of 2003.

Economists warned the job losses could worsen as banks and mortgage companies slash positions to fend off a broad credit crunch. The unexpected decline in nonfarm payrolls caught Wall Street off guard, triggering sharp falls on major stock markets. Most economists had expected around 110,000 new jobs to be created in August The leading Dow Jones Industrial Average closed down a heavy 1.87 percent at 13,113.38 points as the job survey dented investor optimism.

"The jobs numbers were about as disappointing as they could be," said Joel Naroff, chief economist at Naroff Economic Advisors. The employment snapshot raises the odds that the Federal Reserve will slash borrowing costs at a policy meeting scheduled for September 18, partly as it suggests economic growth is slowing. The brunt of the job losses tracked by the report, viewed as one of the best indicators of economic momentum, occurred in the manufacturing and construction industries.

The national unemployment rate held steady at 4.6 percent despite the month's job losses.

The Fed is coming under increasing pressure to slash its key short term federal funds interest rate, which has been anchored at 5.25 percent since June 2006, to bolster growth. "The numbers were obviously prety weak. So I think in the context of what is going on in money markets, it solidifies our expectation of a 50 basis point cut by the Fed on September 18," said Ian Morris, chief US economist at HSBC North America in New.

David Kotok, the chairman and chief executive officer of Cumberland Advisors, agreed that the Fed would likely move to cut rates at its upcoming rate meeting.

"It is clear from this report and from the other reports on the labor markets that the employment situation in the United States is worsening and the pace is accelerating," Kotok said.