Payrolls in U.S. Rise 165,000 as Unemployment Rate Drops

American employers took on more workers than forecast in April and the jobless rate unexpectedly fell to a four-year low of 7.5 percent, reflecting confidence in the outlook for the world’s biggest economy.

Payrolls expanded by 165,000 following a revised 138,000 increase in March that was larger than first estimated, Labor Department figures showed today in Washington. Revisions added a total of 114,000 jobs to the counts for February and March.

Stocks rallied, sending the Dow Jones Industrial Average briefly above 15,000 for the first time, as the report bolstered expectations that the almost four-year economic expansion will overcome a second-quarter slowdown. Hiring advanced even as employers witnessed the onset of planned government spending reductions that the Federal Reserve said are hindering growth.

“The U.S. labor market is not looking as bad as was feared,” said Aneta Markowska, chief U.S. economist at Societe Generale in New York, who correctly projected the jobless rate. “Businesses obviously cut very sharply during the recession and now that revenues are growing, they have to add to headcounts. If we do see some improvement in demand in the second half of the year, which I expect to happen, that will lead quickly to additional job creation.”

The Dow advanced 142 points, or 1 percent, to 14,973.96 at the close in New York. The Standard & Poor’s 500 Index rose 1.1 percent to 1,614.42. The yield on the benchmark 10-year Treasury note jumped to 1.74 percent from 1.63 late yesterday.

Economists’ Forecasts

The median payrolls forecast of 90 economists surveyed by Bloomberg was for a 140,000 advance. Projections ranged from gains of 100,000 to 238,000 following an initially reported 88,000 increase in March.

The difference between today’s unemployment-rate outcome and the average estimate of economists surveyed by Bloomberg was 1.8 times larger than the poll’s standard deviation, or the average divergence between what each economist forecast and the mean. The payrolls figure was 1 time larger.

The contract on the S&P 500 Index expiring in June climbed 0.6 percent in the first five minutes after the figures were released at 8:30 a.m., while the U.S. dollar rose 0.4 percent against the euro.

Labor-market gains in the U.S. contrast with weakness in Europe, where a report today showed that the euro-area economy will shrink more than previously estimated in 2013 as part of a two-year slump that has pushed up unemployment to a record.

European Economy

Gross domestic product in the 17-nation currency bloc will fall 0.4 percent this year, compared with a February prediction of 0.3 percent, the European Commission said. This follows a 0.6 percent contraction in 2012.

In the U.S., the job market is picking up for experienced workers, said Mike McNamara, 30, who just landed a new position in Chicago. The former advertising firm manager’s two-month search resulted in five interviews and two offers before he accepted a job as a projects manager at ShopperTrak, a data tracker for the retail industry. He’ll start later this month at a pay about 60 percent higher than his prior job.

“It is really amazing the amount of opportunities,” said McNamara, who was brought aboard by Harvey Nash Group Plc, an executive recruiter. “There is a lot more interest than two years ago” during his last search. “From an employment standpoint, the economy seems to be picking up.”

Even as payrolls exceeded expectations, a report from the Institute for Supply Management today underscored forecasts for slower economic growth in the second quarter.

Service Industries

The Tempe, Arizona-based institute’s non-manufacturing index declined to 53.1 last month from 54.4 in March. The median forecast in a Bloomberg survey called for a decline to 54. A reading above 50 indicates expansion in the industries that make up almost 90 percent of the economy.

Economic growth will cool to a 1.5 percent annualized pace in the second quarter after growing at a 2.5 percent pace in the prior three months, according to a Bloomberg survey of economists from April 5 to April 9.

“We don’t expect the summer swoon talk to go away,” Chris Rupkey, chief financial economist at Bank of Tokyo Mitsubishi-UFJ Ltd. in New York, said in an e-mail. “But for today the labor market is holding its own -- Washington has not sent the economy off the rails yet.”

Strength in private employment more than offset a decline in government, the Labor Department report showed. Private payrolls increased by 176,000 in April after a revised gain of 154,000 the previous month. Government employment dropped by 11,000.

Domino’s Pizza

Companies like Domino’s Pizza Inc. have indicated they still see strong enough demand to justify increasing their headcounts. The Ann Arbor, Michigan-based pizza chain reported sales at stores open at least 12 months increased in the first quarter by more than 6 percent from a year earlier.

“We’re absolutely hiring right now,” Chief Executive Officer Patrick Doyle said during a May 1 interview on Bloomberg Television. He said “a more comfortable consumer” is driving demand and allowing his business to expand. “Just in the U.S., with 5,000 stores, we could easily hire 10,000 people today.”

Industries adding jobs included leisure and hospitality, including a 38,000 jump at restaurants and bars, today’s report showed. Retail trade and education and health services also increased headcounts.

A drop in the workweek took some of the shine off the positive news on the payroll front. Employees worked 34 hours and 24 minutes a week in March on average, down 12 minutes from the prior month and the fewest since January. The decrease may be another sign the economy is slowing this quarter.

Part-Time Employment

The pullback in the workweek may also be reflected in an increase in part-time employment. The number of employees not toiling a full week rose to 27.5 million from 27.4 million. Some 223,000 more people said they were working part-time because of economic slack last month.

Today’s employment report also showed average hourly earnings rose 1.9 percent from a year earlier to $23.87.

The jobless rate dropped from 7.6 percent in March, indicating that most of the 210,000 new entrants to the labor force found employment. The rate, which is derived from a separate poll of households, was forecast to be unchanged, according to the Bloomberg survey median.

For Chuck Aldrich of Clarion, Iowa, the job search has had its ups and downs. Aldrich, 55, builds corn sprayers for Hagie Manufacturing Co. in Clarion. He was a construction site flagman in 2010, a job he described as “sporadic.”

Jobless Benefits

After several other gigs that included a position that ended when the employer downsized, Aldrich began collecting unemployment benefits last year and enrolled in a class that complemented his engineering degree. That led to his current job at Hagie.

“It’s a lot easier with the money coming in,” said Aldrich, who is buying a new house because of his income gains. “I don’t have to watch my spending quite as tightly.”

Temporary-help services added 30,800 workers to payrolls in April, the most since February 2012.

“Hiring temporary workers is one way to be careful” in an uncertain business environment, John Challenger, chief executive officer of Challenger Gray & Christmas Inc., a Chicago-based employment consulting firm, said in a Bloomberg Television interview with Tom Keene.

Employers “want workforce flexibility to manage peaks and valleys of the industry cycle,” David Barfield, chief executive officer of Bartech Group Inc., a staffing company based in Livonia, Michigan. “Temporary labor gives you fast access to skilled workers.” He said automakers are “among the most aggressive acquirers of temporary labor.”

Ford Hiring

Ford Motor Co. is one manufacturer that intends to step up hiring, even as today’s report showed employment at factories stagnated in April after the addition of 2,000 in March.

Ford, reacting to U.S. pickup sales that have gained momentum for almost two years straight, said yesterday it plans to hire workers at an F-150 truck factory to boost output. The No. 2 U.S. automaker will add more than 2,000 employees at its plant in Claycomo, Missouri, for the extra pickup production and to begin building the Transit commercial van in mid-2014.

“It’s a huge vote of confidence in our truck, our sales and what’s going on in the industry overall and the economy,” Joe Hinrichs, Ford’s president of the Americas, said in a telephone interview. “We wouldn’t be hiring if we didn’t think it was going to last. It is a strong indication of how we feel about our continued leadership in the segment.”

Fed Concern

Officials at the Fed are still looking for greater progress in reducing unemployment. The central bankers said earlier this week that they plan to maintain their $85 billion monthly pace of bond purchases to spur growth and employment prospects and are prepared to raise or lower the level of purchases as the economic outlook evolves.

“Labor market conditions have shown some improvement in recent months, on balance, but the unemployment rate remains elevated,” the Fed said in a May 1 statement. While pointing out that consumer spending, business investment and the housing recovery have advanced, the central bankers said that “fiscal policy is restraining economic growth.”

The monetary policy makers’ concern stems from the planned budget reductions, known as sequestration, that commenced on March 1. The Congressional Budget Office has estimated the cuts will trim the nation’s gross domestic product by 0.6 percentage point in 2013.

Executives at staffing firm Kforce Inc. said they saw the impacts of sequestration rippling through their business. The Tampa, Florida-based company earlier this week reported first-quarter revenues that were lower than a year ago.

“The sequestration was an issue to us,” Chief Executive Officer David Dunkel said during an April 30 earnings call. “Frankly, we didn’t expect to see the ripple effect to commercial clients that we’re doing business with, with other government clients, subcontract business, and even state and local business.”

Before it's here, it's on the Bloomberg Terminal.