Revisions to previous months were trivial overall (a net 4,000) addition. But the mix of the revision contained bad news on the private sector, since there were 43,000 fewer private jobs than first announced, offset by 47,000 more government jobs.

The payroll employment decline was widely spread. Manufacturing payrolls fell 51,000, with motor vehicles and parts leading the decline (down 18,000), as production continues to be scaled back in line with plunging sales. Wood products (down 5,000) and furniture (down 5,000) continued to show spillover effects from the housing downturn, but most other major sectors were down as well.

Construction payrolls fell 35,000, the biggest decline since June, with residential-related construction jobs down 13,000 and nonresidential jobs down 17,000. The bottom is still not in sight. The nonresidential side has been holding up better than the residential side until now, but that is changing, and we expect nonresidential construction activity to plummet in 2009.

Private services employment dropped for the eighth month of the past nine, this time by 91,000, its biggest decline this year. The biggest hit was in the retail sector, which lost 40,000 jobs, of which 10,000 were in motor vehicles/parts retailing and 11,000 in general merchandise. Retail has now shed 250,000 jobs over the past year, and the outlook is bleak because consumer spending is now falling sharply. Transportation and warehousing lost 16,000 jobs, with a 12,000 decline in truck transportation a signal that the flow of goods around the economy is slowing down.

Financial services lost 17,000 jobs, and the decline broadened out to hit securities (down 8,000) and insurance carriers (down 6,000). Given the wave of closings and consolidations now occurring across the financial sectors, these declines foreshadow bigger losses to come. Leisure and hospitality, formerly a solid contributor to job creation, shed 17,000 workers, matching its average decline in July and August.

The only major private services area to show job growth was education and health, and even here the gains were below normal, with education up just 4,000 (12-month average of 14,000) and healthcare up only 17,000 (12-month average of 29,000).

High-end professional payrolls are still rising, as professional and technical services added 12,000 jobs. But temporary help lost another 24,000 jobs.

Government services employment rose only 9,000, mostly in state and local governments (up 6,000). It is surprising that state and local governments were adding jobs so robustly in July (33,000) and August (34,000), but the September hiring slowdown may indicate that budget pressures are now taking their toll.

There was no comfort in the figures for working hours, which showed companies scaling back working hours and overtime. The workweek declined to 33.6 hours, from 33.7 in August, while overall hours worked declined 0.5%, the biggest monthly decline this year. Hours fell 2.0% overall in the third quarter, the biggest drop since the second quarter of 2003.

Hourly earnings were up 0.2% on the month and 3.4% over the past year, a long way below the latest inflation rate (5.4% in August). Wage inflation is a non-issue and does not stand in the way of an interest rate cut.

The unemployment rate held steady this month, but that follows an unusually big jump in August (from 5.7% to 6.1%) that was probably exaggerated by statistical noise. Household employment fell 222,000, while the labor force decreased by 121,000.

Today's report also includes an estimate of the likely "benchmark revision" to the employment level for March 2008. Based on a comprehensive count derived from unemployment insurance tax records, the Bureau of Labor Statistics (BLS) estimates that it has overstated the level of employment in March 2008 by 21,000. This is a very small miss, surprisingly so given the tendency of the survey to understate job declines during downturns. But it is cold comfort to learn that recent history has been fairly accurate, at this time when the outlook is deteriorating dramatically.

Today's employment report is just the latest in a series of indicators showing that the economy was deteriorating rapidly as the third quarter progressed. These include weak retail sales, weak auto sales, declining durable goods orders, and a sharply weaker manufacturing ISM survey. The economy was on the way down even before the latest tightening in the credit crunch. This underlines that the purpose of the rescue package being debated in Congress is damage limitation—minimizing the extent of the recession.

For the Federal Reserve, the economy's tail-spin and the tightening of the credit noose argue strongly for interest-rate cuts. We expect a 50-basis-point rate reduction, to 1.50%, before the end of October (a cut before the October 29 meeting would be no surprise), and ultimately expect the federal funds rate to fall to 1.0%. Some may question how much a rate cut will help, given the reluctance of banks to lend, but that doesn't mean the Fed should sit on its hands.