US unemployment rate plummets to 6.3 per cent, lowest in 5 1/2 years; economy gains 288,000 jobs

WASHINGTON—U.S. employers added a robust 288,000 jobs in April, the most in two years, the strongest evidence to date that the economy is picking up after a brutal winter slowed growth.

The Labor Department also said Friday that the unemployment rate sank to 6.3 per cent, its lowest level since September 2008, from 6.7 per cent in March. But the drop occurred because the number of people working or seeking work fell sharply. People aren’t counted as unemployed if they’re not looking for a job.

Many of those who stopped looking for work last month had been among the long-term unemployed—people out of work for six months or more. The number of long-term unemployed fell 300,000, the sharpest drop in 2 1/2 years, to 3.5 million. Economists said most of them likely gave up looking for work rather than found jobs.

Yet the vigorous job growth in April provided confirmation that the U.S. economy is regaining its health after nearly stalling early this year, when a harsh winter nearly stalled growth. In addition to last month’s burst of hiring, employers added more jobs in February and March than previously estimated. The job totals for those two months were revised up by a combined 36,000.

Employers have now added an average of 238,000 jobs the past three months, up from 167,000 in the previous three.

Sal Guatieri, an economist at BMO Capital Markets, said the surge in hiring “signals that American companies are optimistic the economy will snap back smartly after the largely weather-related slump in the first quarter.”

Hiring last month was broad-based and included higher-paying jobs: Manufacturing gained 12,000, construction 32,000. Professional and technical services, which include accounting and engineering positions, added 25,100 jobs. The number of government jobs grew 15,000, mostly at the local level.

One sour note: Average hourly pay was unchanged at $24.31. Average wages have risen just 1.9 per cent in the past 12 months, just above the annual inflation rate of 1.5 per cent. In a healthy economy, wages grow at roughly a 3 per cent to 4 per cent pace.

The fall in the unemployment rate occurred because far fewer people than normal began looking for work last month. That lowered the number of people with jobs or looking for one by 806,000.

But Patrick O’Keefe, director of economic research at the consulting firm CohnReznick, noted that that figure tends to fluctuate sharply from month to month: The exodus of job-seekers in April came after nearly 1.3 million people had begun working or looking for work in the first three months of the year.

Diane Swonk, an economist at Mesirow Financial, noted that the expiration of extended unemployment benefits at the end of 2013 likely fueled last month’s drop in the number of long-term unemployed. That’s because people are required to look for work to receive unemployment benefits. Once their benefits expired, many frustrated job-seekers likely stopped looking.

April’s solid job growth wasn’t enough to boost stock prices. The Dow Jones industrial average fell nearly 23 points in mid-day trading.

The jump in hiring comes after a spate of other data showed that the economy is improving. Consumers are ramping up spending, businesses are ordering more goods and manufacturers are expanding. The strengthening numbers show that harsh snowstorms and frigid cold in January and February were largely to blame for the economy’s scant growth at the start of the year.

The economy barely expanded from January through March, eking out an annual growth rate of just 0.1 per cent, down from a 2.6 per cent rate in the final three months of 2013. Americans spent more last quarter on utilities and health care, but their spending on goods barely rose. Businesses also reduced spending, and exports fell.

Still, other data indicate that the economy was already rebounding in March and probably improved further in April. Consumers bought more cars and spent more at shopping malls. Overall consumer spending soared in March by the most in 4 1/2 years.

Spending is up partly because Americans earned a bit more, and confidence has improved from the bleak winter months. Incomes rose 0.5 per cent in March, the government said, the most since August.

And a private survey showed that manufacturing activity accelerated in April for a third straight month.

Businesses are also investing more in machinery and equipment after cutting back in those areas in January and December. Business orders for manufactured goods jumped in March, the government said last week.

All told, the positive news has led most economists to forecast a strong rebound in economic growth—to a 3.5 per cent annual rate in the current April-June quarter. And growth should reach nearly 3 per cent for the full year, up from 1.9 per cent in 2013, they expect.