WASHINGTON, 5 April 2003 — US businesses, partially paralyzed by the build-up and launch of the US-led war on Iraq, axed 108,000 jobs in March, the government said yesterday.

The unemployment rate held steady at 5.8 percent. “Bottom line: The economy is a casualty of the war,” said BMO Financial Group economist Sal Guatieri. “We definitely need to see a conclusion to the conflict to see a revival of the US economy.”

Job losses in the non-farm sector were about twice as big as had been predicted. The unemployment rate had been expected to edge higher. It held steady, however, as the total labor force shrank by 64,000 people, suggesting people dropped out of the job hunt. “It is probably reflecting some job seekers losing confidence, perhaps waiting for the war to end and companies to resume hiring again before they seek employment,” Guatieri said.

Analysts said the news could have been worse after a grim February when companies had cut 357,000 jobs, even more than first estimated. Many jobs also had been lost in March as the military called up reservists, delivering an unknown impact to the unemployment data.

Investors showed their nerves. After an initial rally on the advance of US-led troops to Baghdad’s airport, Wall Street’s Dow Jones Industrials Average of 30 top stocks was up only 4.34 points at 8,244.72 by late morning.

The jobless report added to a slew of data showing companies in a freeze while the war is waged.

Industry surveys for March, released this week, showed a four-month manufacturing expansion was thrown into reverse and the services sector contracted for the first time since January 2002.

A breakdown of the March jobs figures showed:

• Manufacturers cut 36,000 jobs, bringing losses since a peak in April 1998 to 2.5 million.

• Transportation industries cut 14,000 jobs, bringing losses since January 2001 to 301,000 of which more than half were from airlines.

• Retailers shed 43,000 people, including 38,000 in bars and restaurants and 13,000 in department stores. The industry has lost 300,000 since a peak in July 2001.

• Government employment fell by 40,000 jobs.

• Services employment dropped by 10,000.

• In construction, employment rose 21,000.

Federal Reserve policymakers were unlikely to react to the data by lowering interest rates — already at a four-decade low — before their next scheduled meeting May 6, said Deutsche Bank economist Cary Leahey.

“By lowering rates before the next meeting, it would be a front page story all around the world and could be considered a lack of confidence not only in the economy but also in US foreign policy,” Leahey said.