U.S. Unemployment Rate Unexpectedly Drops to Two-Year Low of 8.8% in March
The unemployment rate in the U.S. unexpectedly fell to a two-year low of 8.8 percent in March as employers created more jobs than forecast, adding to evidence the labor-market recovery is gaining traction.
Payrolls rose by 216,000 workers last month after a 194,000 gain the prior month, the Labor Department said yesterday in Washington. Economists projected a March increase of 190,000, according to the median estimate in a Bloomberg News survey. A separate report showed manufacturing expanded at close to the fastest pace in seven years.
“It does look like things have turned the corner,” Scott Brown, chief economist at Raymond James & Associates Inc. in St. Petersburg, said in an interview with Lisa Murphy on Bloomberg Television’s “Fast Forward.” “We’re finally seeing small- and medium-sized companies hiring.”
Stocks climbed as the figures showed the world’s largest economy is weathering the highest energy prices in more than two years. Treasuries pared losses after William Dudley, president of the Federal Reserve Bank of New York, said the jobs data shouldn’t change the central bank’s plans to buy $600 billion of government securities through June.
“I don’t see any reason to pull back from that yet,” Dudley said in response to reporters’ questions about the Fed’s bond-buying program after a speech in San Juan, Puerto Rico. In his speech, he said the recovery is “still tenuous” and “far from the mark” of the central bank’s goals of full employment.
The Standard & Poor’s 500 Index gained 0.5 percent to 1,332.41 at the 4 p.m. close in New York yesterday. Treasuries rose, with the yield on the 10-year note falling to 3.44 percent from 3.47 percent the previous day.
Manufacturing expanded in March at about the same pace as February, the strongest month since May 2004. The Tempe, Arizona-based Institute for Supply Management said its manufacturing index was 61.2 compared with 61.4 in February. Readings greater than 50 signal expansion.
While companies stepped up hiring, earnings and hours stagnated, the Labor Department’s figures showed. Average hourly earnings for production workers rose 0.8 percent over the past six months, the smallest gain for such a period since 2004.
“With the increased pace of hiring, this suggests that increasing numbers of returning jobless workers may be settling for lower wages than they had earned before the recession,” David Resler, chief economist at Nomura Securities International Inc. in New York, said in a note to clients.
Bill Gross, manager of the world’s biggest bond fund at Pacific Investment Management Co., said the gain in employment suggests the Fed’s bond purchases have been effective.
“Their objective obviously is to improve the economy and to create jobs but also to put a floor under the stock market, and we know that’s working,” Gross said yesterday in a radio interview on “Bloomberg Surveillance” with Tom Keene.
The Fed, after its latest policy meeting March 15, pledged to continue its bond-purchase program in order to “promote a stronger pace of economic recovery.” Policy makers said the economy is on a “firmer footing” while acknowledging a rise in commodity prices.
Record exports and gains in business and consumer spending are prompting companies like Chrysler Group LLC and Kohl’s Corp. (KSS) to boost staff. Other manufacturing reports yesterday showed China’s factories accelerated for the first time in four months, while India’s grew for a 24th month.
Chrysler, aiming for its first net profit since emerging from bankruptcy in 2009, plans to hire 1,000 engineers and high- tech workers for its small and midsized vehicles. The Auburn Hills, Michigan-based company is also urging its dealers to hire more salesmen and service workers to help boost sales by 32 percent this year.
“Hiring additional personnel in preparation for the spring market is essential for success in 2011,” Peter Grady, vice president of Chrysler’s network development and fleet, said in a memo to dealers last month.
Private hiring, which excludes government agencies, rose by 230,000 in March after a 240,000 increase in February, the biggest back-to-back gain since 2006.
The separate survey of households showed the size of the labor force increased by 160,000 in March and employment grew by 291,000. That pushed the share of the population that is employed up to 58.5 percent from 58.4 percent a month earlier.
Government payrolls decreased for a fifth straight month in March, reflecting cuts at the local level. Factory payrolls increased by 17,000 last month, while the construction industry shed jobs.
Led by Services
Employment at service-providers rose 185,000 in March, the most since May 2010. Temporary-help services companies added 28,800 workers and retail employment increased by 17,700.
Economic growth accelerated to a 3.1 percent annual rate in the fourth quarter of 2010 as consumer spending climbed by the most in four years.
Oil prices that closed at $107.94 yesterday on the New York Mercantile Exchange, the highest since September 2008, may keep climbing should Middle East political turmoil continue unabated, raising the risk that consumer spending will slow.
U.S. companies are still trying to gauge the effects of the March 11 earthquake in Japan and the subsequent nuclear crisis on international supply chains. Toyota Motor Corp. expects assembly interruptions that may affect North America plants.
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