May 2 (Bloomberg) -- The U.S. lost fewer jobs than forecast in April, and the unemployment rate dropped, signaling that the economic slowdown may be milder than the 2001 recession.

Payrolls shrank by 20,000 workers, following a revised 81,000 drop in March, the Labor Department said today in Washington. The jobless rate fell to 5 percent from 5.1 percent the prior month.

``We are in a recession, this report doesn't change that,'' said Ellen Zentner, an economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York, who had forecast a payrolls cut of 25,000. ``What it does is support the idea that the downturn will be mild. Consumer spending isn't going to tank.''

Treasury notes fell and the dollar rallied on speculation the Federal Reserve will refrain from lowering interest rates next month after seven cuts since September. An average of 121,000 jobs a month were eliminated in the first four months of the 2001 recession, compared with an average of 65,000 this year. A separate report from the Fed showed factory orders rose more than anticipated in March.

``Obviously a negative number is still negative,'' said Bill Cheney, chief economist at John Hancock Financial Services in Boston, in an interview with Bloomberg Television. ``But it is still so close to zero that essentially it means flat,'' just as government tax-rebate checks are being mailed, which will be ``almost guaranteed'' to boost job growth.

Economists forecast payrolls would fall by 75,000 in April after a previously reported 80,000 decline the previous month, according to the median of 82 projections in a Bloomberg News survey.

Weekly Wages Down

The income readings in today's report raised concerns over the outlook for consumer spending. Workers' average hourly earnings rose just 1 cent, or 0.1 percent, the least since October, to $17.88 in April. Combined with a decline in the average number of hours worked, that brought weekly earnings down by $1.45, the biggest decline in almost two years, to $602.56.

``No doubt about it, the labor market is displaying profound weakness,'' Ken Mayland, president of ClearView Economics LLC in Pepper Pike, Ohio, said in a note to clients. ``Wage growth is cyclically receding.''

Minutes before the jobs figures were published, the Fed said it will increase its auctions of cash to banks and expanded the collateral it takes on from bond dealers. The steps are aimed at alleviating strains in credit markets.

Fed Measures

With today's action the Fed is now providing $150 billion of 28-day cash loans to banks. Policy makers have also reduced their benchmark rate, the target rate for overnight loans between banks, by 3.25 percentage points since September.

The Fed, in addition, has made up to $200 billion of its Treasuries holdings available for loans to primary dealers in government bonds and opened direct lending to those firms at the same rate as for commercial banks.

Factory payrolls slumped by 46,000 workers, Labor said. Economists surveyed by Bloomberg had forecast a decline of 35,000. In the construction industry, employers cut 61,000 jobs, the most since February 2007.

General Motors Corp., the world's largest automaker, said April 28 it's reducing production of large pickup trucks and sport-utility vehicles this year at four plants in the U.S. and Canada because of slowing sales. The plan affects 3,550 workers.

Car Sales

Industry figures released yesterday showed that autos sold at a lower-than-forecast 14.4 million annual pace in April, the fewest since 1998.

Service industries, which include banks, insurance companies, restaurants and retailers, added 90,000 workers last month, the most this year, after an increase of 7,000 in March, today's report showed. The advance was led by business and professional services, along with education and health jobs.

Accenture Ltd., the world's second-largest technology- consulting company, will hire 60,000 people worldwide, Chief Executive Officer William Green told reporters on April 22. The company hasn't seen a drop or delay in orders from banks and financial companies, he said.

Not all communications companies are expanding. Mike Zafirovski, chief executive officer at Nortel Networks Corp., North America's biggest maker of telephone equipment, is cutting 2,100 jobs and moving another 1,000 to lower-cost locations in a bid to reduce operating expenses.

Smaller Loss

The Toronto-based company today reported a first-quarter loss that was smaller than analysts' estimates after completing a joint-venture contract with LG Electronics Inc.

Retail payrolls declined by 26,800 after falling 19,300 a month earlier.

Home Depot Inc., the world's biggest home-improvement retailer, said May 1 it will close 15 stores and scrap plans for 50 more because the U.S. housing slump is hurting sales. The company will eliminate or move 1,300 jobs because of the closings.

Payrolls at financial firms increased by 3,000 jobs, after dropping 4,000 the prior month, Labor said. The gain, the first since July, is a surprise after figures from the Securities Industry and Financial Markets Association showed that Wall Street banks and securities firms, hit by $309 billion of mortgage losses and writedowns, slashed 48,000 jobs in the past 10 months.

Payroll Revisions

The hiring figures are susceptible to multiple revisions. For example, the job losses at the start of the 2001 recession were smaller when initially reported.

Federal Reserve policy makers this week lowered the benchmark overnight lending rate between banks by a quarter percentage point, to 2 percent, in a bid to revive the economy. The government also started sending out tax rebate checks that were part of its fiscal stimulus plan.

``Household and business spending has been subdued and labor markets have softened further,'' the central bank said April 30 in announcing its decision. It also said that the easing that has taken place since last year, along with efforts to stabilize financial markets ``should help to promote growth over time.''

The U.S. economy expanded at a 0.6 percent annual pace in the first quarter, the Commerce Department said on April 30, as inventories increased because consumer spending slowed and business investment dropped. The rise in stockpiles, along with smallest gain in household spending in seven years, indicates the economy will weaken further in coming months.

The average work week declined to 33.7 hours from 33.8 hours, according to today's report. Average weekly hours worked by factory workers decreased to 40.9 from 41.2, while overtime fell to 3.9 hours from 4.0 hours.

Job losses and higher food and energy costs are making consumers anxious. The Conference Board's confidence index for April fell to 62.3, a five-year low. The share of respondents who expected their incomes to rise over the next six months was a record-low.

To contact the reporter on this story: Courtney Schlisserman in Washington cschlisserma@bloomberg.net.

Last Updated: May 2, 2008 16:20 EDT