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Fears of recession in U.S.

The dollar tumbled to a 15-year low on Friday and stock markets plunged on both sides of the Atlantic after the announcement of shock figures showing employment in the United States had dropped for the first time in four years. With the Federal Reserve meeting in two weeks’ time against a background of a seizing up of the world’s money markets, speculation was rife that the U.S. central bank would definitely make the first cut in interest rates since summer 200 3 — possibly of half a percentage point.

Analysts said it was clear an interest rate cut was needed irrespective of the current credit crunch which on Friday saw three-month inter-bank lending rates in the London LIBOR market hit a fresh, nine-year high of 6.88 per cent.

Financial markets had expected the so-called non-farm payrolls number to show a monthly gain of 110,000.

Instead, the data showed a fall of 4,000 in August plus downward revisions of 81,000 to the previous two months’ numbers.

With house prices already falling in many American cities and with several mortgage lenders having gone bust, talk has been growing that the world’s largest economy could soon head into recession. Friday’s payrolls data suggested it may already be there.

U.S. Treasury Secretary Henry Paulson said he was not totally surprised about the decline in jobs in August given the problems in the housing market and less government hiring, but he insisted the U.S. economy was healthy.

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