U.S. Posts Strong Job Growth in April

The U.S. economy posted a surprisingly strong gain of 288,000 jobs in April, providing convincing evidence that the recovery is finally producing results where it matters most to American workers.

The nation’s unemployment rate edged down to 5.6% last month from 5.7% in March, the Labor Department also reported Friday.

April’s job gains -- far surpassing economists’ consensus expectations of a 170,000 net rise -- boosted President Bush’s political fortunes heading into the final six months of the election campaign.

“It certainly suggests the jobless recovery is over,” said David Wyss, chief economist at Standard & Poor’s. “It’s about as unambiguous as you can get.”

However, fears that the strong report increases the chances of an imminent interest rate hike by the Federal Reserve sent stocks lower and bond yields higher. And the good news about jobs was also partially offset Friday by bad news on the inflation front, as oil prices reached $40 a barrel for the first time since October 1990, a move that will contribute to rising gasoline prices.

Friday’s jobs report marked the eighth consecutive monthly increase in total employment, narrowing the nation’s net job loss since Bush took office to 1.5 million, compared with 2.6 million at the low point in August. If job growth continues at its current pace, which some analysts said they considered possible, it could erase the remaining job deficit by election day and rob Democrats of one of their central campaign issues.

“For the Republicans, this is manna from heaven,” said Ian Shepherdson, chief U.S. economist at High Frequency Economics in Valhalla, N.Y. “These payroll numbers are going to go from being very unhelpful to being very helpful very quickly.”

Bush administration officials celebrated the new numbers, attributing them to the president’s tax cuts.

“We got some good news today,” Bush told a crowd outside the Grant County courthouse in Lancaster, Wis., one stop on a daylong bus tour through Iowa and Wisconsin. “We added 288,000 jobs last month. That’s a good sign. Part of it has to do with making sure you get to keep more of your own money.”

Democratic challenger John F. Kerry was quick to demur, noting that even with April’s gains, 8.1 million Americans are still looking for work.

“Any step forward in the job market is good news for America’s workers, but let’s be clear: We still have a long way to go to get America working again,” the Massachusetts senator said in a prepared statement.

Prominent Democrats said they did not think several months of job growth would devalue the economy as an election issue.

“The job creation is a positive for the president, you can’t deny that,” said New Mexico Gov. Bill Richardson, who was attending a Democratic Leadership Council convention in Phoenix. “But I think the concern that most people have in their daily lives about the economy -- gas prices, job loss overseas -- is still working against the president.”

“The reality is we’re still going to be a couple million jobs lower than when Bush took over,” said council founder Al From.

The job creation numbers were not only big, but also broad-based. Service industry employment surged by 246,000, and the nation’s hard-hit factory workers finally got some good news: Revising prior figures, the government said manufacturers had added 37,000 jobs over the last three months, reversing a string of 42 monthly declines.

April’s hiring spree came after March gains that were revised upward to 337,000 from an initial tally of 308,000.

“The labor market has turned,” said economist Chris Varvares at Macroeconomic Advisors, a research firm in St. Louis.

The robust job figures caught many analysts by surprise. The consensus prediction of economists polled before Friday’s report by Bloomberg News was a monthly net gain of 170,000 and an unemployment rate of 5.7%. The highest estimate offered by any of the 75 analysts surveyed was 250,000.

Economists scrambled to revise their projections of future job creation and the timetable for interest rate increases. Some said they now expected the Federal Reserve Board to begin boosting short-term interest rates next month to ensure the accelerating recovery did not rekindle inflation.

The prospect of looming rate hikes rattled financial markets. The interest rate on the 10-year Treasury note surged to 4.77%, up from 4.60% on Thursday and its highest level since July 2002. Fed officials said Tuesday that they intended to begin raising short-term rates at a “measured” pace, and some analysts had predicted that the first hikes were still months away.

Now, a June rate boost looks far more likely, analysts said.

“What we weren’t expecting was for employment to revive as much as it did in the last couple of months,” said David Rosenberg, chief North American economist for Merrill Lynch. “The data today clearly gives the Fed the green light to move sooner rather than later.”

The April jobs report was the latest in a series of government statistics suggesting that the recovery has gained enough traction to continue without the fiscal boost of additional tax cuts and the monetary fuel of low interest rates.

Factory orders and retail sales soared in March, and the economy grew at an above-average annual pace of 4.2% in the first quarter, after gains of 8.1% and 4.1% in the third and fourth quarters of 2003, respectively.

“The economy has a head of steam, and it’s accelerating, but it’s only now becoming visible in hiring,” said James Glassman, senior U.S. economist at J.P. Morgan Chase. “This has been a long time coming. Everybody is breathing a sigh of relief.”

In the eight major economic downturns preceding the 2001 recession, employment stopped declining an average of 11 months after the slump began, according to an analysis by the Center for American Progress, a liberal policy group.

But the downturn that began shortly after Bush became president was different. The job losses lasted far longer than the historical norm, with employers continuing to shed jobs for 29 months after the official start of the recession in March 2001.

“That was the only thing that was missing,” said Wyss of Standard & Poor’s. “We were seeing [gross domestic product] going up strongly. What we weren’t seeing was employment picking up. The last two months have changed that picture.”

Economists attributed the slow revival in part to abnormally high productivity gains, which enabled employers to produce more goods and services with fewer workers.

The challenge now, some analysts said, is to keep the economy growing fast enough to soak up the big pool of unemployed and underemployed workers and provide higher wages to those already drawing paychecks.

According to Fed officials, 120,000 net new jobs need to be added every month just to keep up with the inevitable growth in the workforce. Employers need to add more than 200,000 jobs a month to accommodate new entrants, reabsorb idled workers and bring down the unemployment rate, analysts said.

“That’s the big open question,” said Lee Price, research director at the liberal Economic Policy Institute in Washington. “Can we get jobs and wages to grow on a sustained basis so they pick up as the driving force of expansion in the economy?”

Along with April’s job gains came a rise of 0.3%, or 5 cents, in average hourly earnings.

*

Times staff writers Maura Reynolds in Lancaster, Wis., and Michael Finnegan in Phoenix contributed to this report.