Labor Department survey shows cuts in most sectors of the economy, raising recession fears. Experts expect the trend to continue.

By Maura Reynolds, Los Angeles Times Staff Writer

8:12 AM PDT, October 3, 2008

WASHINGTON -- Businesses from automakers to retail stores slashed payrolls last month, the government reported today, causing the steepest one-month job losses in more than five years and pushing the economy closer to a recession. In addition to continued drops in construction and manufacturing jobs, the Labor Department survey reported deep cuts in jobs across most sectors of the economy, from stores to hotels to restaurants and temporary employment.

"The job losses in retail trade, leisure and hospitality and employment services -- those are ripple effects," said Harry Holzer, a labor economist at Georgetown University and a fellow at the Urban Institute. "A lot of us think we'll see a lot more of this over the next couple of months."

The Labor Department said that the economy lost 159,000 jobs last month -- the biggest one-month drop since March 2003. The unemployment rate held steady at 6.1% for the month, in part because of a decline in the number of people looking for work.

Economists said they expect the job losses to continue and the unemployment rate to climb in coming months.

"A lot of people think we're just starting to see the effects of the financial crisis and credit markets on the labor market," Holzer said.

The bad employment report was expected to heighten pressure on Congress to pass an economic rescue package designed to ease the credit crunch that has frozen Wall Street and shut off credit flows to businesses across the country. The House has scheduled a vote for today.

"Whatever the government might or might not do to try to bail out the financial system, a consumer-led recession is upon us, and it promises to be a serious one," said Joshua Shapiro, chief U.S. economist at MFR Inc., a New York-based economic forecasting firm.

Job creation is considered a major indicator of the health of the economy, which needs to add about 100,000 new jobs a month to keep pace with population growth. However, the economy has lost an average of 84,000 jobs every month since last December.

"The losses were broad-based. It indicates real caution and concern on the part of businesses," said Joel Naroff of Naroff Economic Associates in Holland, Pa. "Even with a bailout bill, businesses aren't going to start hiring because they'll want to see that it's working first."

"Everything seems to be pointing to a recession," Naroff added.

The employment report was the last one scheduled to be released before next month's presidential election. Both candidates weighed in quickly.

"Today's report of another 159,000 lost jobs confirms what America's working men and women have understood for months: Our nation's economy is on the wrong track. It is imperative that Congress act to address the financial crisis while protecting taxpayers and being good stewards of their dollars," Republican candidate Sen. John McCain said in a statement.

His Democratic opponent, Sen. Barack Obama, said McCain would continue on the same economic course as the current administration.

"With three-quarters of a million jobs lost this year, and millions of families struggling to pay the bills and stay in their homes, this country can't afford Senator McCain's plan to give America four more years of the same policies that have devastated our middle-class and our economy for the last eight," Obama said in a statement.

Times Staff Writers Maeve Reston and Bob Drogin contributed to this report.