Five things we learned from the disappointing jobs report

Disappointing job gains in April were an unwelcome sign after anemic first-quarter economic growth, but analysts said it's not time to panic yet.

The 160,000 net new jobs added last month were the fewest since September, the Labor Department said Friday. And though the unemployment rate held steady at 5%, near an eight-year low, that was partly because 362,000 Americans dropped out of the workforce.

But beyond the two headline numbers, there was hopeful news on worker pay. Wages continued to grow at a solid rate in April and over the previous 12 months have increased at a pace well above the low inflation rate.

Here are five things we learned from the first significant economic report of the second quarter.

Slowing job growth adds to economic concerns

The U.S. economy barely grew in the first three months of the year, expanding at a 0.5% annual pace.

The quarterly growth was the worst in two years as financial market turmoil and a slowing global economy led businesses to cut back on investment and consumers to be cautious with their spending.

But job growth topped 200,000 in February and March, and the strength of the labor market buoyed hopes that the economy wasn't slipping toward recession.

The disappointing April jobs growth flashes a warning signal that there is weakness ahead in the labor market, said Lindsey Piegza, chief economist at brokerage firm Stifel Nicolaus & Co.

Analysts have been expecting economic growth to rebound to about a 2% annual rate in the second quarter.

Sarah House, an economist at Wells Fargo Securities, said the firm had forecast about 1.7% growth this quarter, and that the figure could be revised down a bit after the weak April job gains.

"The report raises concerns that maybe we are in fact seeing a broader slowdown," she said.

She said she's not worried about the strength of the overall economy. Much of the economic weakness so far has been concentrated in industries affected by the sharp drop in oil prices, she said.

Still, declining corporate profits and recession fears could be leading businesses to "stop and think a little harder about their hiring decisions," House said.

Retailers surprisingly reduced payrolls

A key reason for April's lackluster job gains was that hiring by retailers, a strength during the nearly seven-year economic expansion, surprisingly reversed course last month.

The retail industry shed 3,000 net positions, the first decline since December 2014. Retailers had added 39,000 net new jobs in March and 157,000 in the first three months of this year.

The National Retail Federation said the "surprisingly muted growth" in jobs last month could be related to seasonal issues.

House agreed, noting that an earlier-than-usual Easter in March might have led to seasonal hiring then instead of last month.

The same thing could explain a falloff in construction hiring last month as unseasonably warm weather in much of the country this winter allowed projects to start earlier.

Construction companies added just 1,000 net new jobs in April, down from 41,000 the previous month.

Continued troubles in the mining industry caused by low energy prices and cutbacks in government payrolls also contributed to the weak jobs growth.

Payrolls in the mining and logging industry declined by 8,000 last month, although that was an improvement from the 12,000 net jobs lost in March. Led by the federal government, the public sector shed 11,000 jobs after adding 24,000 in March.

But there was good news from America's factories.

Manufacturers, who have been hit hard by the rising cost of U.S. goods abroad, increased their payrolls by 4,000. That was a sharp improvement over the 45,000 total positions lost during the previous two months.

Unemployed Americans are still wary about the jobs market

From October through March, about 2.4 million people rejoined the labor force. That was about as much as the previous three years combined and a sign that an improving jobs market was generating optimism among unemployed workers.

But 362,000 Americans dropped out of the job market last month, the first decline since September. That pushed the percentage of adults in the labor force down to 62.8%, near a four-decade low.

A one-month change isn't enough to be worried about, said Kevin Logan, chief U.S. economist at HSBC, the large British bank. Even a couple of months of a shrinking workforce could be payback after strong growth since the fall.

The increase in the workforce since October helped offset the strong job gains and keep the unemployment rate right around 5%, he said.

Solid wage growth might finally have arrived

Wage growth has lagged during the recovery from the Great Recession. But recently, it's shown signs of picking up as the falling unemployment rate has forced employers to compete to keep and lure workers.

Average hourly earnings increased eight cents last month to $25.53, after a six-cent increase in March.

For the 12 months ended April 30, average hourly earnings have increased 2.5%, well above the low inflation rate.

"The long-awaited acceleration in wage growth is taking hold, though in a somewhat bumpy fashion," said Sophia Koropeckyj, managing director at Moody’s Analytics.

House said the tighter labor market is helping push up wages, which has been a missing component of the economic expansion.

She noted that "2.5% isn’t great, but not that long ago we were looking at only 2%."

The Fed could pause its rate hike plans

The falling unemployment rate and other improvements in the labor market were key reasons why Federal Reserve policymakers nudged up their benchmark short-term interest rate in December for the first time in seven years.

Concerns about the global economy and slowing growth in the U.S. have led Fed officials to delay the next rate hike. But they've continued to cite the strengthening jobs market as a reason why another rate hike could be coming soon.

Fed policymakers next meet in June, and the chances of a rate hike then decreased significantly after Friday's jobs report, said Mark Hamrick, Washington bureau chief of financial information website Bankrate.com. .

"I think we’re rapidly getting to the the point where a June rate hike is nearly off the table," he said.

Fed Chairwoman Janet L. Yellen and her colleagues are moving cautiously on rate hikes because of the uncertainty surrounding the U.S. economy, Logan said.

He said the April jobs report had enough mixed data to leave a June rate hike as an open question.

"It wasn’t a bad report," Logan said. "But it wasn’t so strong that it says [to the Fed], 'OK that does it.'"

Fed policymakers will get one more jobs report on June 3 before they hold their meeting in the middle of the month.