By  on September 10, 2007

WASHINGTON — Posting the first nationwide job loss in four years, U.S. employers cut a seasonally adjusted 4,000 positions in August, undermining one of the key supports for consumer spending.

In the apparel industry, specialty stores beefed up payrolls and department stores cut head count, the Department of Labor reported on Friday.

The construction area was hit hard by the housing slump, and manufacturers also suffered declines, including a loss of 6,800 jobs among domestic apparel and textile producers. In addition, overall job growth in June and July was not as robust as first thought, and the figures were revised downward by 81,000 to growth of 137,000 new positions for the two months.

The unemployment rate held steady at 4.6 percent last month.

The weakened employment picture generated fears on Wall Street that the economy could be headed toward a recession. The Dow Jones Industrial Average fell 1.9 percent to 13,113.38, the Standard & Poor's 500 Index dropped 1.7 percent to 1,453.55 and the Nasdaq fell 1.9 percent to 2,565.7.

The job slump might also entice the Federal Reserve Board to bring its benchmark federal funds interest rate down from 5.25 percent in order to stimulate growth by increasing access to credit. The Fed is to meet on Sept. 18, but a reduction could come sooner.

"The economy is much more vulnerable than we may have thought," said Michael Niemira, chief economist for the International Council of Shopping Centers.

Although August same-stores sales beat Wall Street estimates — Niemira said chain stores posted a collective 2.9 percent rise — stores might be facing trouble ahead. Retailers have cut prices and offered discounts to spur business, which could cut into profits.

"The industry has to be even more mindful of their marketing strategy," Niemira said. "They need to think like a recession environment exists whether it happens or not."

Price, which is already a major driver of shopping trends, is going to become even more important, he said. The next few months might prove to be difficult, especially as the impact of the credit squeeze on Wall Street and the meltdown of the subprime mortgage market cycle is felt throughout the economy."This is still the effect of the slowdown in the housing market and the other slowdown in the general economy," said Rajeev Dhawan, director of the Economic Forecasting Center at Georgia State University. "Now it's very clear the economy is already weak and it's clear that, with the credit crunch, it's going to get weaker."

Especially important for fashion retailers looking ahead to the crucial holiday season is whether shoppers will cut back on spending because they are worried about their next paychecks.

"Through this cycle, people have often said the consumer will be affected by the declining housing market and falling house prices, but as long as employment keeps growing, the consumer will be OK," said Nigel Gault, Global Insight's chief U.S. economist. "The big question mark is going to be the holiday sales. That's going to be the real test and this will make people more nervous about the holiday season."

Retailers sometimes look to cut costs by trimming their own payrolls, though this can backfire if there isn't enough help in the stores to keep customers happy.

Last month, apparel and accessories stores added a seasonally adjusted 3,300 new jobs compared with July, for a total of 1.5 million. On the other hand, department stores, which have been struggling as of late, slashed payrolls by 7,800 to 1.6 million.

Continuing their battle against imports and a changing sourcing landscape, U.S. apparel factories cut a seasonally adjusted 3,700 positions compared with July, for a total of 214,000, as textile mill employment shrank by 2,300 to 167,700 and payrolls at textile product mills slid by 800 to 152,700.

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