Washington Post Staff Writers

Thursday, October 23, 2008; A01

Employers are moving to aggressively cut jobs and reduce costs in the face of the nation's economic crisis, preparing for what many fear will be a long and painful recession.

The labor market has been weak all year, with a slow drip of workers losing their jobs each month. But the deterioration of the job market is now emerging as a driver of economic distress, according to a wide range of data and anecdotal reports from corporate America.

In September, there were more mass layoffs -- instances in which employers slashed 50 or more jobs at one time -- than in any month since September 2001, the Labor Department said yesterday. And nearly half a million Americans have filed new claims for unemployment benefits in each of the past four weeks, the highest rate of such claims since just after the terrorist attacks seven years ago.

Anecdotal reports suggest that the hemorrhaging in the job market has only begun. Companies that announced plans this week to cut jobs include Internet company Yahoo (1,500 positions), pharmaceutical company Merck (7,200), National City bank (4,000), and Comcast, the cable company (300).

The weakening employment outlook is part of the reason that investors have become more fearful of a deep, prolonged recession -- fears that led to yet another miserable day on Wall Street yesterday, with the Dow Jones industrial average down 514 points, or 5.7 percent.

"The customers I've spoken to are all living under a sense of fear," said Paul Villella, chief executive of HireStrategy, a Reston company that matches employers and workers. "They have very limited visibility into the future and have a great degree of uncertainty, so they just want to sit steady and be conservative in hiring."

Villella and others who work with employers said that for many companies, the pullback in hiring is not a direct result of tightening credit. Rather, firms simply don't know whether their own customers will be affected by the financial crisis; as a result, they want to hold their breath and delay hiring decisions until they have a better sense of the future.

The nation has shed jobs every month this year, but at a slower pace than in past economic downturns. The slide accelerated in late summer, with declines similar to those in past recessions. Last month, employers shed 159,000 jobs, the most this year and more than the average number of monthly job losses in the terrible labor markets of 2001 and 2002.

More obscure indicators monitored by economists at the Federal Reserve and in the private sector also show an inflection point in late summer. For example, employers had 214,000 fewer job openings in August than in July, according to a Labor Department report. Over the past year, the number of openings dropped by a more modest average of 74,000 per month.

Indeed, many companies are imposing hiring freezes. Such moves don't often get the kind of headlines that layoffs do, but because they shrink the number of places people can turn to for jobs, they still hurt the economy.

VMware, a Palo Alto, Calif., software company, is one firms that has curbed hiring. Earlier this week, after reporting third-quarter earnings that beat Wall Street's expectations, VMware told analysts on a conference call that despite seeing revenue jump 32 percent, a "hiring pause" had been imposed for all jobs except critical ones.

"We are just being conservative," VMware spokeswoman Mary Ann Gallo said yesterday.

The nation's unemployment rate was 6.1 percent last month, not astronomical by historical standards. But the rate was up from 5 percent in April, and many forecasters now expect it to hit 7 percent or more by the end of this downturn.

The construction and manufacturing sectors have been losing jobs for more than a year. But lately, job losses have begun or accelerated in a wide range of other fields. Retailers, stung by less consumer spending, cut 87,000 jobs in the three months ended in September. Employment services shed 100,000 positions in that span, reflecting the fact that companies are slashing temporary jobs. The leisure and hospitality industry cut 51,000 jobs, as people had less money to stay in hotels and eat in restaurants.

In the greater Los Angeles area, Manpower, one of the nation's largest temp agencies, has noticed a steady increase in job seekers since early September. Paul Holley, a spokesman for the company, said there are more applicants for fewer openings and better-qualified candidates seeking work.

What's particularly noteworthy, Holley said, is what's happening in Phoenix. Job applications have held steady, but since September more applicants have had backgrounds in general labor and warehouse distribution. That's unusual because warehouse and logistics jobs usually hold steady in the fall to support retailing for holiday shopping.

Randstad USA, another large temp agency, reports that job applications are up in the Tucson area and that the firm is even getting inquires from people who still have jobs. "In general, a lot of people seem to be insecure about their current jobs even if they are still employed," said Emily Cline, Randstad's area vice president for Tucson.

As reports of layoffs continue to pile up around the country, executives at Randstad said they have noticed a shift in psychology among job seekers.

"Employees are much more willing to work extra hours and to take on additional duties to enhance job security and improve their employability," said Eric Buntin, managing director for marketing and operations at Randstad. "In a changing market, they know that's a valuable resource."

They are also willing to make less money, even as the cost of living goes up. Cline said some call center jobs that were paying $9 an hour in the Tucson area last year are now paying $8.50. "Their option becomes to take the job or not have the job," she said.

With workers losing their leverage to negotiate raises, there could be greater downward pressure on wages, which in turn could drive down overall economic growth. Workers are already having a hard time getting raises; inflation-adjusted pay for nonmanagerial workers fell 1.9 percent in the year ended in September, according to the Labor Department.

Staff writer Michael A. Fletcher in Cleveland contributed to this report.