U.S. hiring far exceeds expectations
The U.S. economy, which had been showing signs of being dragged down by a slumping housing market, could be getting fresh legs from a robust job market and falling unemployment.
A surprisingly strong government report Friday showed that the economy added a net 180,000 jobs in March while the jobless rate drew even with its lowest point in six years. Analysts said growth in hiring and wages could keep consumers confident enough to continue spending even though the housing market has slowed and some borrowers have had trouble making mortgage payments.
That’s particularly good news for Southern California, where a strong job market reduces the chances of a repeat of the early 1990s, when massive layoffs, primarily in the aerospace industry, caused thousands to lose their homes and converted a housing slump into a deep recession whose damage lasted for years.
Analysts have debated for months whether the housing market -- aggravated by the sub-prime mortgage market meltdown -- will do now to the nation what it did 15 years ago to Southern California. Those who have said it won’t found validation in Friday’s jobs report.
“The latest job numbers show an economy that is effectively absorbing the blows from the residential and mortgage sectors,” said Bernard Baumohl, managing director of the Economic Outlook Group. “The economic outlook is quite bright, and the probability of recession still stands at a negligible 20%.”
“A strong jobs market will keep us growing,” added Nigel Gault, U.S. economist for research firm Global Insight. “Housing alone won’t tip us into recession.”
Gault said the jobs report was particularly encouraging because it showed that the business sector, which has cut back on spending for plant and equipment, was still willing to pay for workers.
Faced with Friday’s report, many investors abandoned any expectations of an interest rate cut by the Federal Reserve in the near future to keep the economy from capsizing.
Until Friday, Global Insight had looked for one rate cut by the Fed before year-end. On Friday, Gault said the jobs report “gives no reason for the Fed to do anything but stick with its extended hold on interest rates.”
As a result, bond interest rates rose sharply. The yield on a two-year Treasury note closed at 4.75%, up from 4.62% the day before. The stock markets were closed for Good Friday, but equity futures prices rose after the report’s release.
The 180,000 jobs gained last month, the biggest increase in three months, handily beat the 130,000 expected by the consensus forecast of private economists. The unemployment rate slid by one-tenth of a point to 4.4%, equaling its recent low of last October. Joblessness hasn’t been lower since May 2001, just before the last recession.
Construction accounted for 56,000 jobs, or nearly one-third of March’s increase. Analysts were unsure whether that indicated the beginning of the end of the housing industry’s troubles or whether it was merely a rebound from February, when cold weather over much of the country helped send construction jobs down 61,000.
Manufacturing maintained its relentless march downward. Its March loss of 16,000 jobs marked its ninth straight month of going the wrong way. Manufacturing now accounts for barely more than 1 job in 10.
The Labor Department also revised upward by 32,000 the number of jobs added in January and February.
Jared Bernstein, an economist with the liberal Economic Policy Institute, remained unimpressed with overall job creation during the current economic expansion. It was only about four years into the last recovery that total employment reached its prerecession peak, he said. Monthly job growth of 180,000 would have been considered sub-par in the booming economy of the late 1990s.
Now, six years later, 4% more Americans are employed than at the beginning of the recession, according to Bernstein. If job growth had followed the path of the previous cycle, when employment had risen by 9% at this stage, 7 million more Americans would have jobs, he said.
Wages, which initially lagged behind job growth as the economy recovered from its 2001 recession, continued their more recent growth -- good news for workers but not so good for inflation prospects.
Average hourly earnings of production workers increased by 6 cents to $17.22, and weekly earnings rose by $3.75 to $583.76. Over the last year, hourly earnings have risen by 4% and weekly earnings by 4.4%.
Thus, earnings are rising faster than price inflation, which, excluding food and energy, rose 2.4% in the most recent 12 months.