New unemployment data provide stark evidence that the U.S. is moving inexorably towards a period of economic recession and is being shoved in that direction by a severe housing slump and credit crunch that so far have resisted government solutions and injections of new capital.

Non-farm employers reduced their workforces by 63,000 jobs in February, the biggest cut in five years, and private-sector employment dropped by 101,000 jobs, its third consecutive month of decline. The construction sector, which has been slammed by market conditions, lost another 33,000 jobs in February, compared to the previous month's total. Construction employment has plummeted by 331,000 jobs since its recent peak in September 2006, according to Labor Department estimates that were released today. During this period residential specialty trades lost 209,000 jobs, and residential home building lost 137,000 jobs.

"The debate should no longer be about whether there is or is not a recession, only about how deep it will be," wrote Nigel Gault, chief U.S. economist for Global Insights. Gault dismisses the slight decline in the unemployment rate last month, to 4.8 percent, as a statistical aberration. "That came about only because the labor force fell even more steeply than employment. That's bad news, not good news."

As if homeowners weren't worried enough about holding onto their jobs, they are also watching the value of their homes erode to record levels. For the first time since 1945, equity-the value of a house minus its mortgage-related debt-fell below 50 percent for a full quarter, according to Federal Reserve estimates, and this situation could get worse before it gets better. Moody's projects that 8.8 million homeowners, or 10.3 percent of all households, will have zero or negative equity by the end of this month, and that 13.8 million households, or nearly 16 percent, will be "upside down"-i.e., their mortgages will be more than the value of their houses-if home prices fall 20 percent from their peak. That seems to be the direction that prices may be headed, based on interviews with builders around the country as well as the latest S&P/Case-Shiller Index, which showed that home prices fell 8.9 percent in the fourth quarter of 2007, the biggest dip in the Index's two decades of tracking.

The Fed in recent weeks has become bolder in its efforts to stave off recession. In its latest maneuver today, the central bank announced that it would increase the amount of liquidity available to lenders two ways:

  • It is increasing the size of short-term loan auctions it will conduct on March 10 and 24 to $50 billion each, from $30 billion when the auctions were first announced late last month. The purpose of these auctions is to get money to banks quicker so they continue lending to customers. The Fed first started these auctions in December (it's made $160 billion available prior to today's announcement, according to the Associated Press), and indicated that it would conduct similar auctions over the next six months, or as market conditions warranted;

  • Starting today, the Fed will make available $100 billion to various financial entities via 28-day term-repurchase agreements, and would accept as collateral any types of securities that are eligible in conventional open-market operations, including mortgage-backed securities. The Fed indicated it would continue to increase the size of these "term repos" as conditions dictate.

Brian Bethune, Global Insight's chief U.S. financial economist, applauds the Fed's latest moves as a way of contending with "rapid increases in borrowing spreads and further tightening in credit conditions-two corrosive processes that have obviated much of the ease that [the Fed] has put into the financial system since September."
Bethune recommends even more aggressive action by the Fed and anticipates another 50-basis-point cut in the federal funds rate before the bank's next meeting on March 18.