April 5, 2013

U.S. adds only 88,000 jobs, but rate drops to 7.6%

The unemployment rate fell only because more people stopped looking for work, and government cuts will likely hurt more companies with federal contracts in the coming months.

The Associated Press

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A help-wanted sign hangs in front of a restaurant recently in Richmond, Va. Some economists say they expect a slowdown this spring, though not as bad as in the past three years.

The Associated Press

An intensifying European financial crisis depressed hiring in 2010. Japan's earthquake and tsunami also disrupted U.S. manufacturing in 2011. Last year, an unusually warm winter caused employers to do more hiring early in the year, cutting into hiring that normally happens in spring.

This year, steep government spending cuts that began taking effect March 1 could have the same effect. But some economists say they expect any weakening this spring to be milder. The economy has a stronger foundation now. Housing is recovering, and consumers are spending more.

Rising home prices and near-record-level stock prices are making consumers feel wealthier. Construction firms have also added 169,000 jobs in the past six months as home building has accelerated.

"The recovery is on much better footing this year than in the last few springs, and the recovery in the housing market will do much to support growth," said Sophia Koropeckyj, an economist at Moody's Analytics.

Economists also cautioned against reading too much into a one-month slowdown in hiring. The higher revised job totals for January and February suggest that some hiring might have again occurred earlier in the year than usual. Job gains have averaged 168,000 in the past three months, close to the trend of the past two years.

Sluggish job growth could embolden the Federal Reserve to keep borrowing costs low for the long run. The Fed has said it plans to keep short-term interest rates at record lows at least until unemployment falls to 6.5 percent — and Chairman Ben Bernanke has said a 6.5 percent rate is a threshold, not a "trigger," for any rate increase. The Fed wants to see sustained improvement in the job market.

Friday's report showed hiring was stronger in January and February than previously estimated. January job growth was revised up from 119,000 to 148,000. February was revised from 236,000 to 268,000.

Several industries cut back sharply on hiring. Retailers cut 24,000 jobs, manufacturers 3,000 jobs.

Some economists said retailers might have held back on hiring in part because March was colder than normal. That likely meant that Americans bought fewer spring clothes and less garden equipment.

The oil and gas industry has been adding jobs fast over the past several years but cut jobs in March for the first time in 2½ years. Oil drilling and exploration is booming, but low natural gas prices over the last year have made natural gas drilling in some areas unprofitable.

In March, average hourly pay rose a penny, the smallest gain in five months. Average pay is just 1.8 percent higher than a year earlier, trailing the pace of inflation, which rose 2 percent in the past 12 months.

Most analysts think the economy strengthened from January through March, helped by the pickup in hiring, a sustained housing recovery and steady consumer spending. Consumers stepped up purchases in January and February, even after Social Security taxes rose this year.

At the same time, some small businesses say they've grown more cautious about hiring. The government spending cuts could cut into sales at companies with federal contracts and at small retailers located near government facilities. And small business owners worry about increased health insurance costs next year, when the government's health care overhaul is fully implemented.

A survey released Wednesday by the National Federation of Independent Business showed that fewer small businesses plan to hire.

As federal agencies and contractors cut back in coming months, Nariman Behravesh, chief economist at IHS Global Insight, expects job growth to average 100,000 to 150,000 a month, down from an average 212,000 from December through February.

"The good news is that this is happening at a time when the private economy is gaining momentum," Behravesh said. He expects hiring to pick up after mid-year.

Craig Alexander, chief economist with TD Bank Financial Group, said the economy isn't growing fast enough to generate enough jobs. He expects the economy to grow around 2 percent this year, a sluggish pace. He thinks it would be growing faster, perhaps at a 3 percent annual rate, if not for the Social Security tax increase and the federal budget cuts.

"Fiscal austerity is having an impact," Alexander said.

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