The U.S. economy added 288,000 jobs in April, the third consecutive monthly increase and additional evidence that labor markets have recovered from an unusually rough winter.
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But Friday’s jobs report released by the U.S. Labor Department was marred by news that 806,000 people left the work force last month, a factor that helped drive down the headline unemployment rate and also the less-watched but equally important labor force participation rate.
The unemployment rate plunged 0.4 percentage points to 6.3%, its lowest level in 5½ years. The labor force participation rate dropped to 62.8%, matching the lows reached in December and October, which had not been seen since March 1978.
Also troubling was data that showed hourly wages were stagnant.
Economists had predicted 210,000 new jobs and a drop in the unemployment rate to 6.6% from its 6.7% March level. The February and March labor figures were revised upwards by 36,000 jobs.
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Despite the mixed results, analysts cheered the robust job growth.
David W. Berson, chief economist at Nationwide Insurance in Columbus, Ohio, said ahead of the report’s release that he expected the figures to show “the emergence of the economy out of the deep freeze.”
Severe weather through much of the first quarter suppressed hiring in many regions of the U.S., leading to disappointing jobs reports in January and February. The harsh winter weather was also blamed for an abysmal first-quarter gross domestic product report released earlier this week.
"The economy is on,” said Todd M. Schoenberger, managing partner at LandColt Capital LP in New York. “Over the prior ten year period, the second quarter has always been the most robust for job growth; so it was critical we have a pop in April.”
“This figure bodes well for the rest of the quarter,” Schoenberger added. “Challenges may appear in the second half of the year due to slower GDP rates, but today's report is reason to celebrate. Markets are certain to rise and reach record highs today."
Beyond the headline unemployment rate and the number of jobs created, economists have been keeping a close eye on the labor force participation rate, a key gauge of the percentage of working-age Americans currently employed. April’s report shows why.
Economists have acknowledged in recent months that the headline unemployment rate has often been a less-than-accurate gauge of the health of U.S. labor markets.
In March the Federal Reserve was forced to discard a 6.5% unemployment threshold it had set for possibly raising interest rates because the rate had fallen much quicker than anticipated and not for all the right reasons.
Berson explained that a rapid decline in the unemployment rate during much of 2013 was caused not by a sustained strengthening of the jobs market but rather because thousands of people were leaving the workforce, many of them frustrated at their inability to find gainful employment.
As floods of Americans left the workforce last year, the labor force participation rate fell to its lowest level since the late 1970s. That’s exactly what happened again in April.
Now that the Fed has de-emphasized the headline unemployment rate as a primary economic indicator for use in determining future monetary policy, previously obscure statistics such as the labor force participation rate have taken on a new importance.
“I guarantee the Fed is looking closely at this figure,” Berson said.
Also being closely scrutinized are wage levels and the number of full-time jobs relative to the working-age population of 16 to 54, or the so-called employment-population ratio. In April, average hourly earnings for all nonfarm employees were unchanged at $24.31, according to the Labor Department, and the employment-population ratio was unchanged at 58.9% and has remained at about that level for the past year.
“The lack of wage growth highlights (the) relatively high rate of unemployment, meaning plenty of slack still exists in the economy, and also points to weak underlying consumer spending growth,” said Chris Williams, chief economist at financial research firm Markit.
Employment growth was “widespread” last month, according to Friday’s report, led by gains in professional and business services, retail trade, food services and drinking places, and construction.
The Labor Department said job growth had averaged 190,000 per month over the past 12 months. Economists have said since the recession ended four year ago that the U.S. would have to average at least 200,000 new jobs per month for the labor market to show sustained momentum. It’s now approaching that level.
The April labor numbers could ease some concerns raised by the dismal GDP report -- the measure of all goods and services produced in the U.S. -- which showed the economy basically stalled during the first quarter, growing at a puny 0.1% annual rate. The solid job growth adds fuel to the broad belief that the economy is poised for much stronger growth in the second quarter.
“After GDP data showed a stalling U.S. economic recovery in the first quarter, upbeat labor market data bring reassuring news on the health of the U.S. economic recovery at the start of the second quarter,” Williams added. “The jobs data vindicate the Fed’s decision to consider any weakness on the economic data earlier this year to be primarily a consequence of extreme weather.”