Employers slashed 63,000 jobs in February, the most in five years and the starkest sign yet that the country is heading dangerously toward recession or is in one already.
The Labor Department's report, released Friday, also indicated that the nation's unemployment rate dipped from 4.9 percent in January to 4.8 percent last month as hundreds of thousands of people — perhaps discouraged by their prospects — left the civilian labor force.
This marks the second month in a row that the economy has lost jobs and a very troubling sign to say the least. Furthermore, January's numbers were revised a bit worse, 22k in losses compared to initial estimates of 17k. While the news is certainly not good for the economy, we should continue to keep in mind that unemployment continues to be below five percent (4.8% currently).
A few months ago, I wrote this article. In it, I questioned the validity of the pessimism over the economy. At the time, I saw no economic data that supported it. The most recent GDP at the time was 3.6% over the previous quarter, and the unemployment rate was 4.5%. Along with that, the stock market was at all time highs. Of course, since then things have changed. Now, the economic data matches the national mood. Besides the last two months producing negative job growth (something that hadn't happened since June of 2003), the last GDP number had growth of only .6%. This creates an economic situation in which our economy isn't merely softening but rather on the brink of a recession.
Still, I am concerned that all of this bad news will lead to an overreaction. The Fed has already cut the Prime Rate significantly and more cuts are likely (especially in light of these numbers). The President and Congress have agreed on a stimulus package that I frankly find to be fairly light, however it is going to be an add on to the drastic rate cuts.
While a recession is now a real concern, if the Fed cuts too much they may stop a recession and cause inflation.
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