U.S. Loses Jobs for a Second Month

Updated from 8:41 a.m. EST

Welcome to the recession of 2008.

The government reported Friday morning that the U.S. job market shrunk for the second month in a row in February marking the first back-to-back monthly job losses for the economy since 2003.

Nonfarm payrolls shed 63,000 jobs for the month, the fastest rate of decline for the U.S. job market in five years. Moreover, December's gain was revised down to 41,000 from 82,000 and January's decline was revised down to a loss of 22,000 jobs from 17,000.

"[T]he underlying trends [in the jobs report] are horrible, with worse to come," said Ian Shepherdson, chief U.S. economist with High Frequency Economics. He added that "the Fed has to ease much more."

The February data fell well short of expectations on Wall Street, where economists were expecting a gain of 25,000 nonfarm payrolls. Moreover, the report went a long way in confirming a conclusion that many investors have already reached: that the decline in the U.S. housing market, which has already crippled the world's credit markets, is now spreading to the rest of the economy.

With the job market weakening, consumer spending -- the chief engine of economic growth in the U.S. -- is threatened, raising the specter of a painful economic slowdown combined with the spread of credit problems to areas that have so far held up.

The Labor Department's report also said that the nation's unemployment rate dipped to 4.8% in February from 4.9% as hundreds of thousands of people abandoned the civilian labor force in a sign that job prospects are dim.

Those who were employed fared better, but wage gains aren't always good news on Wall Street. Inflationary signs have already been building in recent data, leading to warnings of stagflation -- a combination of economic malaise and rising prices that could ultimately require oppressively high interest rates to overcome.

Average hourly earnings increased by 5 cents, or 0.3%, to $17.80. That was up 3.7% from a year earlier and in line with expectations on Wall Street. The average work week was unchanged at 33.7 hours.

The February job losses were widespread throughout the economy. Manufacturing firms cut 52,000 jobs, continuing a long decline. Construction employment was down by 39,000, with most of the declines in residential real estate but non-residential real estate also down.

In the service sector, business and professional services companies shed 20,000 jobs. The financial sector lost jobs for the seventh-straight month, reflecting layoffs at major banks like Citigroup (C Quote - Cramer on C - Stock Picks) and Merrill Lynch (MER Quote - Cramer on MER - Stock Picks). The retail sector lost 34,100 jobs.

Education and health services employment gained 30,000 jobs while the leisure and hospitality sector rose 21,000 and the government added 38,000 jobs.

The report raised the prospect for more interest rate cuts from the Federal Reserve in the months ahead. The central bank's federal funds rate target has been lowered by 225 basis points since September with a stunning 125 basis points of that move coming in January alone.

Despite the silver lining, stocks retreated at the open in reaction to the employment report, but were more recently on the rise. The Dow Jones Industrial Average was recently off by 0.1%. The S&P 500 was up 0.6% and the Nasdaq Composite was up 0.3%.