U.S. Job Growth Boosts Outlook

U.S. payrolls swelled by a net 274,000 jobs last month, the government said Friday in an unexpectedly strong report that cheered job seekers and suggested that the recent economic slowdown might be only temporary.

The April gain far exceeded the 175,000 increase forecasted by economists, and came as the Labor Department sharply revised upward the previous two months’ growth by a net 93,000 positions.

The rosier job numbers landed just in time, breaking a string of subpar economic reports for March that had spooked the stock market and led some analysts to forecast slower economic growth. The economy added only 146,000 jobs in March, below what is needed just to keep up with growth in the labor pool.

March also was riddled by sluggish retail sales, slower business investment and a widening trade deficit. Growth in the first three months of the year fell to a 3.1% annual rate, versus 4.4% for all of last year.

Analysts said the new job numbers reassured them that the economic expansion was back on track, although high oil prices continued to be a drag.

“If you go back one month, you had a lousy report, and all the bears came out and said the sky’s falling,” said Ken Goldstein of the Conference Board, a business research organization in New York. “Well, the sky’s not falling, the economy’s not folding up.... All of that’s going to send the bears back into hibernation.”

“It is important not to overreact to one report on the upside, just as I believe it was important not to overreact to a few reports on the downside, and oil prices remain high,” said Lynn Reaser, chief economist for Banc of America Capital Management. “But this report does cause us to breathe a sigh of relief that the economy seems to have stumbled just very briefly.”

One concern for investors Friday was that stronger job growth meant it was less likely that the Federal Reserve would soon ease its steady diet of quarter-point interest rate hikes, designed to fight rising inflation. After initially rallying on the job report, stock indexes ended the day flat, with the Dow Jones industrial average adding only 5.02 points.

Some analysts said the April jobs report indicated that companies might have realized they could not wring any more productivity out of their current staff and must boost payrolls if they wanted to grow.

Since the 2001 recession, employers generally have been pushing employees to work faster while keeping hiring to a minimum. That has resulted in record productivity gains and corporate profits. But productivity growth has tapered off recently.

“Cracking the whip any further won’t help,” Bernard Baumohl, executive director of the Economic Outlook Group in Princeton Junction, N.J., wrote in a note to clients Friday. “As a result, companies are willing to hire new workers to increase production. This is very bullish for the economy because it allows a greater number of people to participate in the economic expansion.”

Jobs were added in almost every sector in April, except the long-battered manufacturing field. The average workweek expanded to 33.9 hours, the highest since 2001 and a sign that employers would have to add to payrolls to increase output.

The unemployment rate remained at 5.2%, but even that was seen as good news. The rate didn’t fall because many jobless people resumed their job hunts, apparently more confident in their prospects. The percentage of people who had stopped looking for work hit a 17-year high in January before starting to fall last month.

The only negative sign for workers in April’s report was that although wages grew slightly, they continued to lag behind inflation. The broadest measure of employee pay, the employee cost index for salaries and wages, rose 2.4% in the first three months of the year, while inflation rose 4.3%.

Analysts cautioned, however, that the economy still was not producing enough jobs -- and that would keep wages from jumping faster.

Four years into a normal economic recovery, the economy should add about 300,000 jobs a month, said John Lonski, chief economist at Moody’s Investors Service. Even with April’s big number, job growth has averaged 181,000 a month over the last 12 months. In much of the 1990s, the economy routinely added more than 200,000 net positions a month.

“The labor market’s getting better, job creation is picking up, but it’s far from being a seller’s market for labor,” Lonski said.

Roy Krause, chief executive of job-placement firm Spherion, suggested that a shortage of highly skilled workers might be in the offing. His firm has logged a 20% rise in clerical placements and an 18% rise in what it calls permanent placements -- typically middle-level managers and other skilled professionals.

The rise in hiring of those managers, Krause said, shows that companies have been too tightfisted and lost ground in core areas that require highly trained workers. “We feel there is going to be a skill shortage coming up,” he said.

But at least one analyst said April’s job numbers showed that employers still haven’t figured out when it’s prudent to hire.

Richard Yamarone, director of economic research at Argus Research Co. in New York, noted that job numbers have fluctuated wildly over the last 18 months. He said he expected that to continue, along with seesawing evaluations of the prospects for economic growth.

“This is a choppy number [that] we’re going to get for the rest of the year,” he said. “It’s going to be very difficult to predict because I don’t think managers know how to predict aggregate demand down the road.”

The uncertainty, Yamarone said, stems largely from China. Executives see Chinese businesses buying huge amounts of copper and oil and expect an expanding economy, but then panic when the purchases dry up without explanation.

“When you see this, you start to wonder, as a corporate chieftain, what’s happening here, is it real, is it fake?” Yamarone said.

That is complicated, he added, by the closed nature of the Chinese economy, which is still in transition from state-run to free market. “It’s very difficult to get a grasp on what’s going on overseas because, of course, of the big Chinese wall.”

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Jump in jobs

April job growth in selected industries (in thousands)

Leisure, hospitality: 58

Construction: 47

Healthcare: 25

Motion picture, sound recording: 9

Mining: 8

Telecommunications: 7

Source: Labor Department