Payrolls shrank by 80,000, more than forecast and the third monthly decline, the Labor Department said today in Washington. The jobless rate rose to 5.1 percent, the highest level since September 2005, from 4.8 percent.

``This is the final blow,'' said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York. ``It's clear the U.S. economy is in a recession. That's going to shake the confidence of investors and companies across the world and cause people to curtail spending in other countries.''

Traders raised bets the Fed will cut its benchmark rate half a point this month after central bankers already enacted the deepest reductions in borrowing costs in two decades last quarter. Officials signaled increasing concern about the economy and credit markets this week, with Chairman Ben S. Bernanke saying for the first time the U.S. may enter a recession.

Treasuries climbed, with 10-year note yields falling to 3.50 percent at 11:10 a.m. in New York, from 3.59 percent late yesterday. Odds of a half-point rate cut at the Fed's April 29- 30 meeting rose to 38 percent from 20 percent yesterday, futures show. Stocks dropped.

Economists' Estimates

Workers' average hourly wages were 3.6 percent higher than a year earlier, the smallest increase since March 2006.

In a sign that investor concern about inflation is diminishing, U.S. debt that adjusts to inflation outperformed regular Treasuries. Regular 10-year notes yielded 2.30 percentage points more than similar-maturity Treasury Inflation Protected Securities, the least since March 27. The so-called breakeven rate reflects the rate of inflation that traders expect for the next decade.

The loss of jobs in February was revised to 76,000 from 63,000. Economists had projected payrolls would fall by 50,000 in March, according to the median of 79 forecasts in a Bloomberg News survey. Economists' forecasts ranged from a decline of 150,000 to a gain of 65,000.

``If you're ever going to ring a bell on a recession, these numbers do it,'' Stuart Hoffman, chief economist at PNC Financial in Pittsburgh said in a Bloomberg Television interview. ``You have had job losses all year.''

IMF Meeting

The job figures come a week before Bernanke and Treasury Secretary Henry Paulson meet their counterparts from the Group of Seven major industrial nations alongside the spring meetings of the International Monetary Fund in Washington.

IMF Chief Economist Simon Johnson said yesterday in a statement that the U.S. economy has slowed to a ``virtual standstill,'' hurting global growth prospects. A document featuring IMF forecasts obtained by Bloomberg News this week showed the fund characterized the U.S. financial crisis as the worst since the Great Depression.

Gains in government jobs prevented a deeper drop in payrolls last month as private employers cut 98,000 workers, the fourth straight monthly decline. A survey from ADP Employer Services issued yesterday had projected private payrolls would rise by 8,000.

Labor revisions subtracted 67,000 jobs from the originally reported total figures for January and February. The last time the economy lost jobs for at least three months coincided with the start of the Iraq War in 2003.

Unemployment Forecasts

The jobless rate was forecast to rise to 5 percent from 4.8 percent in February, the Bloomberg survey said.

President George W. Bush's chief economist said he's not paying too much attention lately to the unemployment rate.

``I don't focus too much on the monthly unemployment rate because it has been a bit volatile,'' Edward Lazear, chairman of Bush's Council of Economic Advisers, said in a Bloomberg Television interview. By historical standards, Lazear said joblessness isn't that high compared with past recessions.

A weak economy and job losses are especially bad news for Republicans who are looking to hold onto the White House in November. In the four presidential elections in the last 50 years that have closely followed a recession, the challenging party has won. In a New York Times/CBS poll released today, 78 percent of voters said the economy is ``fairly bad'' or ``very bad.''

Candidate Reaction

Democratic presidential candidates Hillary Clinton and Barack Obama today both called for a second economic stimulus bill to give the economy a boost. John McCain, the presumptive Republican nominee, called for lower taxes and streamlined regulations to create more jobs.

Factory payrolls shrank by 48,000 workers, the biggest decrease since July 2003, Labor said. The drop included a loss of 24,000 jobs in the auto manufacturing and parts industries, which the government said ``largely'' reflected the effects of a strike at a supplier for General Motors Corp. Economists had forecast a decline of 35,000 in manufacturing jobs.

The walkout by workers at American Axle & Manufacturing over pay and benefits that started on Feb. 26 has idled almost half of GM's North American workforce.

Ford Cuts

Ford Motor Co., which lost $15.3 billion in the past two years, may cut more jobs in North America, Chief Executive Officer Alan Mulally said last month.

``We must continue to downsize and simply will not have enough jobs for all of our current hourly workers,'' Joe Hinrichs, Ford's manufacturing chief, and Marty Mulloy, vice president of labor affairs, said in a March 19 commentary sent to newspapers in communities where Ford has plants.

Builders eliminated 51,000 jobs after a decline of 37,000 in February.

Service industries, which include banks, insurance companies, restaurants and retailers, added 13,000 workers last month after an increase of 6,000 in February, the report showed. Retail payrolls decreased by 12,400 after dropping 46,700 in February.

Payrolls at financial firms decreased by 5,000, after declining 11,000 the prior month, Labor said. Job losses in the industry are mounting following the collapse in subprime lending.

Wall Street Losses

Wall Street banks hit by mortgage losses and writedowns have cut more than 34,000 jobs in the past nine months, the most since the dot-com boom fizzled in 2001, according to the Securities Industry and Financial Markets Association.

This year, financial firms including Lehman Brothers Holdings Inc., Citigroup Inc. and Morgan Stanley have reduced staff in fixed income trading, securitization and investment banking. Lehman has eliminated 18 percent of its workforce, Morgan Stanley has cut 6.2 percent, and Merrill Lynch & Co. has trimmed 4.5 percent.

The average work week lengthened to 33.8 hours from 33.7 hours. Average weekly hours worked by production workers increased to 41.3 from 41.2, while overtime increased to 4.1 hours from 4 hours. That brought average weekly earnings up by $3.47 to $603.67 last month.

Workers' average hourly wages rose in line with forecasts to $17.86, up 5 cents, or 0.3 percent. Economists surveyed by Bloomberg had forecast a 0.3 percent increase from the prior month and a 3.6 percent gain for the 12-month period.

Recession Forecasts

Economists are increasingly forecasting a prolonged recession. Martin Feldstein, the Harvard economics professor who heads the research group that determines when downturns begin, said last month that a contraction had begun.

Stephen Roach, chairman of Morgan Stanley's Asia division, said in a Bloomberg Television interview today in Cernobbio, Italy, that the U.S. ``will stay in recession long after'' the current financial crisis ends.

``It now appears likely that real gross domestic product will not grow much, if at all, over the first half of 2008 and could even contract slightly,'' Bernanke said in testimony to Congress April 2. He said he expected unemployment to move ``somewhat higher,'' in line with recent data showing a ``softer labor market.''

Bernanke told lawmakers yesterday that the central bank is ``ready to respond to whatever situation evolves,'' and cited ``considerable stress'' in markets. New York Fed President Timothy Geithner said policy makers must ``continue to act forcefully.''

To contact the reporter on this story: Bob Willis in Washington at bwillis@bloomberg.net

Last Updated: April 4, 2008 13:33 EDT

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