April 5, 2013 / 12:30 PM / 5 years ago

WRAPUP 6-Weak job gains cast shadow on U.S. economic outlook

* Nonfarm payrolls climb 88,000 in March
    * Unemployment rate falls to 7.6 percent
    * Participation rate lowest since 1979

    By Jason Lange
    WASHINGTON, April 5 (Reuters) - American employers hired at
the weakest pace in nine months in March, a sign tax hikes that
kicked in early this year as part of Washington's austerity
drive could be stealing momentum from the economy.
    Payrolls expanded by just 88,000 last month outside the
farming sector, the Labor Department said on Friday. 
    That was well below market expectations for a 200,000
increase and fell short of even the most pessimistic forecast in
a Reuters poll. The jobless rate ticked a tenth of a point lower
to 7.6 percent largely due to people dropping out of the work
    "The U.S. economy just hit a major speed bump," said Marcus
Bullus, trading director at MB Capital in London.
    Some of the weakness appeared due to higher tax rates that
took effect in January. While recent reports have pointed to
relatively buoyant retail sales in January and February,
Friday's data showed retailers actually cut staff in March by
24,100, making it the hardest-hit sector last month.
    Moreover, the government said hiring in the retail sector
was weaker in January and February than initially thought. 
    The report rattled investors and sent U.S. stocks lower,
contributing to the biggest weekly decline for share prices this
year. Benchmark Treasury debt yields fell to their lowest this
year and the dollar declined against a basket of currencies. 
    It was unclear whether across-the-board federal budget cuts
that began in March played a role in the weak pace of hiring,
although nervousness over the cuts might have made businesses
shy about taking on more staff. 
    Some economists cautioned against reading too much into the
report, though the data nonetheless raised questions over
whether the strong hiring seen in the winter actually meant the
economy had shifted into a higher gear.
    "We don't think there is enough signal here to conclude the
U.S. economy is wobbling. Rather, it appears that the underlying
trend has not improved as much as the January-February data
suggested," said Julia Coronado, an economist at BNP Paribas in
New York.
    March's slowdown in job growth could make policymakers at
the Federal Reserve more confident about continuing a
bond-buying stimulus program. Prior advances in the labor market
recovery had fueled discussion at the central bank over whether
to dial back the purchases, perhaps as soon as this summer. 
    "This could give them the green light to stay with this
policy longer," said Brian Rehling, chief fixed income
strategist at Wells Fargo Advisors in St. Louis.
    The employment report did have some positive news for the
economy. The Labor Department revised readings for January and
February to show 61,000 more jobs added than previously
estimated. The average workweek rose to its highest level in a
    "Companies ramped up working hours instead of hiring
additional people. The fact that labor demand kept rising should
bode well for future job gains," said Harm Bandholz, chief U.S.
economist at UniCredit Research in New York.
    The construction sector added 18,000 jobs, reinforcing the
view that a recovery in the housing sector has become
    Separate reports on Friday also gave upbeat signals. The
U.S. trade gap narrowed in February due to rising exports and
falling crude oil imports, while U.S. consumer credit that month
recorded its biggest increase in half a year. 
    But analysts point out that federal spending cuts have only
just begun and will be a more substantial drag on the economy
between April and June, when many government workers begin
taking days off work without pay.
    In March, government payrolls fell only 7,000, partly
reversing a 14,000-job gain from February. 
    The Congressional Budget Office has estimated that tighter
fiscal policy will subtract about 1.5 percentage points from
economic growth this year. 
    "The trend in payrolls is consistent with our expectation
that employment growth will slow somewhat in coming months (due
to) the large, and increasing, fiscal drag," said Michael Gapen,
an economist at Barclays in New York.
    Fed Chairman Ben Bernanke, who has said the labor market
must show sustained improvement before monetary stimulus is
eased, has voiced concern about the spending cuts.
    The jobless rate fell to its lowest since December 2008, but
the report showed that much of the drop was due to the labor
force shrinking by 496,000 people. 
    That pushed the labor force participation rate - the
percentage of working-age Americans either with a job or looking
for one - to 63.3 percent, its lowest since 1979. 
    The unemployment rate is derived from a survey of households
which is separate from the survey of employer payrolls. The
household survey actually showed employment fell by 206,000 in
    Some of the people dropping out of the labor force are
retiring or going back to school, but others have given up the
job hunt out of discouragement.
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