WASHINGTON (Reuters) - Companies created jobs at the fastest pace in five years in April, pointing to underlying strength in the economy even as the jobless rate rose to 9.0 percent.
Private sector hiring, including a big jump at retailers, boosted overall nonfarm payrolls by 244,000, the largest increase in 11 months, the Labor Department said on Friday. Economists had expected a gain of only 186,000.
The private sector created 268,000 jobs, the most since February 2006, while government payrolls shrank.
The data backed views the economic recovery would regain speed this quarter after stumbling in the first three months of the year. Earlier this week, other reports pointed to a slowing in the labor market.
“What we’re seeing is a sustained pick-up in hiring and it suggests that businesses have gained enough confidence to look past short-term fluctuations in demand,” said Aaron Smith, a senior economist at Moody’s Analytics in West Chester, Pennsylvania.
Investors on Wall Street cheered the report, which showed job gains across the board, with the exception of government. U.S. stocks rose for the first time this week, while prices for longer-dated government debt fell.
The dollar rose broadly and some of the gains were driven by a German news report, later denied, suggesting Greece had raised the possibility of leaving the euro zone.
While the economy has created jobs for seven straight months, gains remain too meager to make much of a dent in the pool of 13.7 million Americans who are out of work.
A recent spike in first-time applications for state unemployment benefits caused some economists to worry that job growth could slow in May and June. Initial claims vaulted to an eight-month high last week.
Still, the pace of job growth averaged 233,000 over the past three months, an acceleration from 104,000 in the prior three months that suggests the recovery is growing firmer.
Nigel Gault, chief U.S. economist at IHS Global Insight in Lexington, Massachusetts, said the rise “shows good momentum that should allow the economy to absorb the twin shocks from the Middle East and Japan without too much damage.”
The unemployment rate in April backed away from a two-year low of 8.8 percent to rise for the first time in five months. It is derived from a separate survey of households, which showed a sharp decline in employment and a modest rise in the size of the labor force.
Economists, however, place more weight on the larger, less-volatile survey of employers, which found 46,000 more jobs than previously thought were created in the prior two months.
The report capped a good week for President Barack Obama, whose approval ratings received a lift from the killing of Osama bin Laden. A healthier jobs market could prove key to his hopes to win reelection in 2012.
The White House can also take relief from a big drop in oil prices on Thursday that should soon drag gasoline costs lower. Brent crude futures fell for a fifth straight day on Friday.
“We’ve added over the last 14 months more than two million jobs in the private sector. This is the best month of private sector job growth in five years. So I don’t think that’s nibbling, that’s clearly a move in the right direction,” White House economic adviser Austan Goolsbee told Reuters Insider.
The relatively vigorous expansion in payrolls in April, if sustained, could encourage some members of the Federal Reserve to begin pushing for interest rates hikes.
New York Federal Reserve Bank President William Dudley minimized any move soon toward tightening saying the economy has a “considerable way to go to meet the Fed’s dual mandate of full employment and price stability.
Most economists agree, noting that there is still a huge amount of slack in the labor market and wage growth remains tepid. Average hourly earnings rose a mere 3 cents in April and are up a modest 1.9 percent from a year ago.
A Reuters survey of economists at top financial institutions showed many expected the U.S. central bank to raise benchmark rates by the end of the third quarter of 2012.
Only a fraction of the more than eight million jobs lost in the 2007-2009 recession have been recovered. Even at April’s relatively rapid rate of job growth, it would take nearly 2-1/2 years to reclaim all those jobs.
High gasoline and food prices weighed on U.S. economic growth in the first quarter when the economy grew at a subdued 1.8 percent annual rate. It had expanded at a 3.1 percent clip in the final three months of last year.
“GDP growth should pick up to more than 3 percent in the second quarter. If oil prices stay down ... the economy can maintain that pace in the second half,” said IHS Global’s Gault.
Details of the payrolls report were generally upbeat, even though government employment contracted for a sixth straight month in April, shedding 24,000 jobs.
The bulk of gains in payrolls were in the private services sector which created 224,000 new positions after adding 194,000 in March. Within that segment, retail saw a surge of 57,100 jobs — the most since 2000 — and leisure and hospitality added 46,000 new workers.
Though fast-food chain McDonald’s last month announced it was taking on 50,000 new staff, those jobs were unlikely to have been included in April’s payrolls as the hiring was done after the survey period for the report.
Employment in goods-producing industries increased 44,000, with construction payrolls climbing by 5,000 and manufacturing gaining 29,000.
Editing by Neil Stempleman and James Dalgleish