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NEW YORK (CNN) -- Employers made their deepest cut in staffing in almost five years in February, the Labor Department reported Friday.

The weak report fueled already mounting recession fears and is likely to influence the Federal Reserve's decision on interest rates later this month.

There was a net loss of 63,000 jobs, which is the biggest decline since March 2003 and weaker than the revised 22,000 jobs lost in January. Economists had forecast a gain of 25,000 jobs.

"These poor jobs data are the strongest evidence yet that the economy has slipped into a recession of uncertain depth and duration," said University of Maryland Professor Peter Morici.

Job losses were widespread, reaching beyond the battered construction sector, which lost 39,000, and manufacturing, where job losses hit 52,000.

Retailers cut 34,000 jobs.

Temporary staffing firms cut nearly 28,000 from their payrolls, another warning sign of employers pulling back.

Hotels cut about 4,000 jobs, a sign that discretionary consumer spending could be on the wane.

Overall the private sector cut 101,000 jobs, with only a gain in government employment limiting losses.

Despite the loss, the unemployment rate improved to 4.8% from the 4.9% reading in January. Economists had forecast the unemployment rate would rise to 5%. The rate fell because of a big jump in the number of people that the government counted as no longer in the labor force.

"Businesses have become too pessimistic about the outlook for the economy, and the capacity of the Bush Administration and Federal Reserve to manage it, to be adding new employees or replacing those that leave," Morici said.
Underlying weakness

Keith Hall, the commissioner of the Bureau of Labor Statistics, which prepares the jobs report, testified Friday before a congressional committee that job growth has stalled.

Hall said that the labor market was weaker than suggested by the decline in the unemployment rate, pointing to an increase of 637,000 workers over the past 12 months who have part-time jobs but would prefer to be working full time.

He said the bureau's broadest measure of the unemployment rate, one which counts as unemployed both those part-time workers who want full-time jobs as well as those who are interested in working but are not current searching, now stands at 8.9%, up from 8.1% a year ago.

"We've clearly had a broad weakening in the labor market," Hall testified. "This weakening in the labor market is not a sudden thing, it has been happening for over a year."

Rep. Elijah Cummings, who was chairing the hearing of Joint Economic Committee, suggested that Congress needed to do more to address the problems of unemployment. Some proposals: extended unemployment benefits and increased food stamps, as well as greater investment in infrastructure.

"Frankly I believe our economy stands poised on an uncertain cliff, threatening to throw our nation into a crisis," said Cummings. "We do not need to recite a litany of data to know our economy is struggling."

The rising fears of recession has sparked a series of interest rate cuts from the Federal Reserve, along with a $170 billion economic stimulus package passed last month by Congress.

The Fed is set to meet March 18 to decide what to do with interest rates. Friday's report would seem to suggest more rate cuts are on the way, despite the improved unemployment rate.

"Even the silver lining of a falling unemployment rate has a little rust," said Rich Yamarone, director of economic research at Argus Research. He predicted that the central bank will cut rates by a half percentage point at both its March meeting and again on April 30.


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