Private sector hiring lifts March payrolls

A man walks past a hiring sign in Falls Church, Virginia June 5, 2009.

WASHINGTON (Reuters) - U.S. employers created jobs in March at the fastest rate in three years as private firms stepped up hiring, the strongest signal yet that the economic recovery is on a solid footing and needs less government help.

Nonfarm payrolls rose 162,000 and the unemployment rate held steady at 9.7 percent for a third straight month, the Labor Department said on Friday.

The payrolls increase, only the third since the economy sunk into recession in late 2007, was the largest since March 2007. Private employers hired more workers than expected, while temporary hiring for the U.S. decennial census came in below economists' forecasts.

"The report suggests that the economy has broken through to sustained job creation. But it will be a long slog to bring down the unemployment rate," said Nigel Gault, chief U.S. economist at Global Insight in Lexington, Massachusetts.

Job growth is critical to keeping alive the economic expansion that started in the second half of 2009 once government stimulus efforts and a boost from business inventory rebuilding fade.

The U.S. dollar touched a fresh seven-month peak against the yen on the upbeat employment report, while the yield on the benchmark 10-year Treasury note jumped to a 9-1/2 month high. U.S. stock index futures rose slightly.

Payrolls for January were revised upward to show a 14,000 gain instead of a loss of 26,000, while February was adjusted to show only a loss of 14,000. Previously, February had been reported as down 36,000.

Economists had expected nonfarm payrolls to rise 190,000 last month, but they said the solid rise in private-sector hiring gave the report a stronger-than-expected tone.

The government hired 48,000 temporary workers last month for the decennial census, while private payrolls jumped 123,000, the biggest increase since May 2007.

Blizzards weighed on hiring in February and last month's jobs gains partly reflected a bounce back. Still, analysts said private payrolls would have risen without that boost.

The jobless rate held steady as discouraged workers returned to the labor force to look for jobs, another factor that analysts took as a positive sign.

The labor market has lagged the economy's recovery from the worst downturn since the 1930s, creating a political challenge for President Barack Obama.

TURNING THE CORNER

Obama's popularity has taken a hit along with that of fellow Democrats in the face of high unemployment despite his efforts to paint rival Republicans under former President George W. Bush as responsible for the economic mess he inherited.

Republicans said the jobs report was mildly encouraging but the unemployment rate remained too high.

Obama acknowledged more work needed to be done to put back to work the more than 8 million Americans who have lost their jobs since the economy was struck by recession.

"We are beginning to turn the corner," Obama said in Charlotte, North Carolina. "Today's job numbers, while welcome, leave us with a lot more work to do. It will take time to achieve the strong and sustained job growth that we need."

Some analysts said the relatively strong details of the report suggested the economy was on a path that could lead the Federal Reserve to raise benchmark interest rates as early as late this year.

The U.S. central bank has promised to keep overnight rates -- currently near zero -- ultra low for an extended period, citing subdued inflation and the likelihood the economic recovery will be moderate.

The Fed has identified unemployment as one of the factors that will determine when it will start raising rates.

"If the rest of the data flow this month proves healthy, we believe the Fed will consider removing the 'extended period' language at the April 28 meeting and start hiking rates in September," said Michelle Meyer, an economist at Barclays Capital in New York.

Construction payrolls grew 15,000 last month after dropping 59,000 in February, reflecting the turn in the weather. Manufacturing added 17,000 jobs in March.

Payrolls in the service sector increased as retail employment climbed 14,900. Government employment rose 39,000.

The jobs picture was further brightened by temporary help payrolls, which increased 40,900 in March. Temporary employment, which is seen as a precursor to full-time jobs, has grown by 18 percent since September.

The average workweek rose to 34 hours from 33.9 hours in February.

Despite the sharp turnaround in employment last month, weaknesses persist. A broad measure of unemployment that includes workers who want a job but have stopped looking and those working part time for economic reasons edged up to 16.9 percent from 16.8 percent in February.

A record 44.1 percent of unemployed workers in March had been out of a job for 27 weeks or more.

"Companies cut jobs too fast and too deep at the start of the downturn. They remain skittish about hiring, but even moderately positive sales growth may force their hand," said Bill Cheney, chief economist at John Hancock in Boston.

(Reporting by Lucia Mutikani; Editing by Neil Stempleman)