Job Gains to Help Buffer U.S. Economy Through SlowdownAlex Kowalski
The U.S. economy looks better placed to withstand a slowdown projected for the second quarter as the labor market keeps making progress.
Employers took on an additional 165,000 workers in April, more than forecast, according to Labor Department data released yesterday. Revisions showed 114,000 more workers were hired in February and March than previously estimated. The jobless rate fell to a four-year low of 7.5 percent last month.
Payrolls are now expanding at a faster pace this year than in 2012, which will help the U.S. economy emerge from a softer period of growth projected for the second quarter. Stocks rallied after the report, sending the Dow Jones Industrial Average briefly above 15,000 for the first time.
The jobs data “reminds us that we’re just seeing a temporary breather” in economic growth this quarter, said Harm Bandholz, chief U.S. economist at UniCredit Group in New York. “I’m more optimistic on the U.S.”
Other reports this week showed auto sales and manufacturing cooled in April, indicating the expansion will slacken as consumers are pinched by higher taxes and factories rein in stockpiles and production. Nonetheless, the pickup in hiring means American companies are confident the world’s largest economy will overcome across-the-board federal budget cuts to rebound in the second half.
Economists project gross domestic product will cool to a 1.5 percent annualized pace the period from April through June, after advancing at a 2.5 percent rate in the prior three months, according to a Bloomberg survey from April 5 to April 9.
The jobs report removed some of the worst concerns from the economic outlook.
“It’s not that we won’t have a spring swoon,” said Nariman Behravesh, chief economist at IHS Inc. “It will probably be milder than we first thought.”
Behravesh, based in Lexington, Massachusetts, now foresees growth cooling to a 1 percent pace this quarter, up from the 0.5 percent he initially penciled in.
The Labor Department yesterday revised the March employment gain up to 138,000 from the initially estimated 88,000. February’s advance was pushed up to 332,000 from the 268,000 prior estimate, making it the strongest month for employment since November 2005, excluding the census-related temporary boost in government hiring in mid 2010.
Payrolls have climbed by 196,000 workers a month on average in 2013 compared with 183,000 per month in 2012.
The Dow advanced 142.4 points, or 1 percent, to close at 14,973.96 yesterday 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 climbed 0.11 percentage point to 1.74 percent.
The median payrolls forecast of 90 economists surveyed by Bloomberg called for a 140,000 advance in April. Projections ranged from gains of 100,000 to 238,000.
Private payrolls, which exclude government agencies, increased by 176,000 in April after a revised gain of 154,000 the previous month, the report showed. Industries adding jobs included leisure and hospitality, with a 38,000 jump at restaurants and bars. Retailers and education and health-services employers also increased headcounts.
Elisa Brown, a 53-year-old who last month started a new job, said she had enough confidence to search for a different position. She is now a regional account manager for startup nScaled, Inc., a cloud computing recovery service, in San Francisco.
“I made a very targeted search,” Brown said, noting that she used professional contacts, online networking and a career coach to help her transition from a sales job. “It was the right time for me, and I think the economy has gotten better.”
The jobless rate dropped last month 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.
One reason for caution: employees worked 34 hours and 24 minutes a week on average, down 12 minutes from the prior month and the fewest since January. The decrease may be another sign the economy is easing this quarter.
A slowdown in consumer spending shows why the expansion may cool. Cars and light trucks sold at a 14.9 million annualized rate in April, the fewest since October, industry data showed this week.
Households may finally be reacting to the increase in the payroll tax. The levy that funds Social Security reverted in January to its 2010 rate of 6.2 percent from 4.2 percent.
Manufacturing is also slackening. Figures from the Institute for Supply Management, a Tempe, Arizona-based purchasing managers’ group, showed factories were pulling back.
The progress in the labor market is still not satisfactory for Federal Reserve officials. 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.”
Policy makers’ concern stems from the planned budget reductions, known as sequestration, which began on March 1. The Congressional Budget Office has estimated the cuts will trim the nation’s GDP by 0.6 percentage point in 2013.
A sign of what could come under sequestration, government employment fell in April for a second month, dropping by 11,000.