Job market resilience eases growth concerns
WASHINGTON (Reuters) - Employment rose at a faster pace than expected in April and hiring was much stronger than previously thought in the prior two months, a sign of resilience that should help the economy absorb the blow from belt-tightening in Washington.
Nonfarm payrolls rose by 165,000 jobs last month and the unemployment rate fell to 7.5 percent, the lowest level since December 2008, the Labor Department said on Friday. The job counts for February and March were revised up by a net 114,000.
"This bolsters the case that the U.S. economy will be able to survive the combined headwinds of sequestration and a deepening recession in Europe," said Scott Anderson, chief economist at Bank of the West in San Francisco.
Investors on Wall Street cheered the data, which beat economists' expectations for a 145,000 jobs gain and a steady 7.6 percent reading on the unemployment rate.
U.S. stocks rallied, with the Standard & Poor's 500 index and the Dow Jones industrial average closing at record highs. The dollar vaulted to a one-week high against the yen, while Treasury debt prices tumbled.
Payrolls rose by 138,000 jobs in March, 50,000 more than previously reported, and job growth for February was revised up by 64,000 to 332,000, the largest increase since May 2010.
But the gains last month were far below the 206,000 jobs per month average of the first quarter, the latest evidence the economy is cooling, even if not as quickly as earlier feared.
Indeed, the data provided a number of signs of a loss of momentum.
Construction employment fell for the first time since May and manufacturing payrolls were flat. The length of the average workweek pulled off a nine-month high and a gauge of the overall work effort fell.
Economists pin the slowdown largely on higher taxes that took hold at the start of the year and $85 billion in federal government spending cuts, known as the sequester, that went into effect at the beginning of March. Economies overseas have also weakened, cutting into U.S. export growth.
While the U.S. economy grew at a 2.5 percent annual pace in the first quarter, data on construction spending, retail sales and trade suggested it ended the period with less speed.
Further, factory data for April imply the economy braked further at the start of the second quarter, a thesis supported by a report on Friday that showed the pace of growth in the services sector in April was the slowest in nine months.
"We are probably going into a second-quarter soft patch, but it's not something that's going to derail the recovery," said Julia Coronado, chief North American economist at BNP Paribas in New York.
FED STILL IN PLAY
The 0.1 percentage point drop in the jobless rate reflected a gain in employment, rather than people leaving the workforce.
Indeed, more Americans entered the workforce than in any month since October. The labor force participation rate - the share of working-age Americans who have a job or are looking for one - held steady at a 34-year low of 63.3 percent.
While the pace of hiring was stronger than expected in April, it remained below the roughly 300,000 jobs a month that economists say are needed over a sustained period to put a significant dent in unemployment.
While the jobless rate has dropped 0.4 percentage point since January, employment is still 2.57 million jobs below where it stood in December 2007. At April's job growth pace, it would take about 16 months to make up that lost ground.
About 21.9 million people are either unemployed, working only part-time although wanting full-time work, or want a job but have given up the search.
Economists said the data did not appear strong enough to dissuade officials at the Federal Reserve from pressing forward with their bond-buying stimulus, given the immense slack still in the labor market. It did, however, dampen budding speculation the U.S. central bank might step up its purchases.
"It probably cools any expectations that the Fed is going to increase the asset purchases, especially with the unemployment rate declining," said Raymond Stone, chief economist at Stone & McCarthy Research Associates in Princeton, New Jersey.
A Reuters survey of economists at financial institutions that deal directly with the Fed found 11 of these so-called primary dealers expect the U.S. central bank to continue asset purchases into 2014, while just four saw the program ending this year.
GOVERNMENT JOB CUTS WEIGH
All the job gains last month were in the private sector, which added 176,000 new positions. Gains were led by a rebound in retail employment, which had dropped in March after eight straight months of increases. Retail payrolls rose 29,300.
Temporary help, a harbinger of future hiring, increased by the most since February. It has now risen for seven straight months.
"That tells me payroll growth is going to continue to be on a decent pace," said Stone.
In a surprise, the construction sector shed 6,000 workers after 10 straight months of gains. Increases in residential construction were offset by declines in jobs for nonresidential builders and other construction workers.
Government payrolls dropped 11,000 after falling 16,000 in March. Most of the job losses last month came from the federal government, with big declines at the U.S. Postal Service, which is downsizing.
Average hourly earnings rose 0.2 percent. But with average hours worked by private workers slipping to 34.4 hours from 34.6 hours, weekly earnings actually fell.
"The decline in income coupled with a low saving rate does not bode well for consumers," said Michelle Meyer, a senior economist at Bank of America Merrill Lynch in New York.