Unexpected Job Dip In Aug. Jolts Stocks, Ups Recession Odds

The U.S. economy lost jobs for the first time in four years in August, raising the odds of a recession and making aggressive Federal Reserve interest rate cuts more likely.

Nonfarm payrolls fell by 4,000, the Labor Department said Friday, confounding Wall Street's forecast of a 110,000-job gain. It was the first decline since August 2003.

June and July payrolls were revised down by a combined 81,000.

The jobless rate held steady at 4.6%, near a six-year low, according to the separate household survey. But that was because 592,000 people left the work force.

"There's not a lot of sugar coating that can be done here," said Richard DeKaser, chief economist at National City Corp. (NYSE:NCC) "I think it's time for some aggressive action" by the Fed.

Payrolls at builders dropped by 22,000 in August after falling 14,000 the month before. More construction job losses are likely.

Pending home sales plunged in July to the lowest since September 2001. That was before lenders began tightening credit even further as Wall Street lost its appetite for buying mortgages.

Countrywide Financial cfc said late Friday that it will cut 10,000 to 12,000 jobs over three months, up to 20% of its work force. Earlier, IndyMac imb said it would cut 1,000 jobs, the latest in a slew of lender-related layoffs in recent weeks.

But labor weakness was widespread, one of the first clear signs that the housing and credit woes are hurting the broader economy.

Why was everyone so shocked at this report? Did anyone really think the bursting of the housing bubble would not eventually take down the entire economy? I have been saying since I started this site that a recession was coming. This report certainly makes that more likely. Who will really suffer? The poor and middle classes will bear the brunt of any downturn while those that helped cause it, with economic ponzi schemes like subprime mortgages, will weather the storm just fine.