American employers hired at the slowest pace in nine months in March, a sign that Washington's austerity drive could be stealing momentum from the economy.
The economy added just 88,000 nonfarm jobs last month and the jobless rate ticked a tenth of a point lower to 7.6 percent largely due to people dropping out of the work force, Labor Department data showed on Friday. Economists polled by Reuters had expected a gain of 200,000. Analysts suspected some of the weakness was due to tax hikes enacted in January. While retail sales data had not shown a big impact earlier in the year, retailers cut staff in March by 24,100. "The US economy just hit a major speed bump," said Marcus Bullus, trading director at MB Capital in London.
It was unclear whether across-the-board federal budget cuts that began in March played a significant role in the weak pace of hiring, although nervousness over the cuts might have made businesses shy about taking on more staff. US stock index futures fell following the data, as did yields on US government debt. The slowdown in job growth could make policymakers at the Federal Reserve more confident about continuing a bond-buying stimulus program. Prior advances in the labor market recovery had fueled discussion at the central bank over whether to dial back the purchases, perhaps as soon as this summer. "The recent discussions about the Fed backing off from its quantitative easing has been premature," said Russell Price, senior economist at Ameriprise Financial Services in Troy, Michigan.
The report did have some positive news for the economy. The Labor Department revised readings for January and February to show 61,000 more jobs added than previously estimated. The construction sector added 18,000 jobs despite cold weather in parts of the country, reinforcing the view that a recovery in the housing sector has become entrenched. But analysts have noted that the federal spending cuts have only just begun and will be a more substantial drag on the economy between April and June, when many government workers begin taking days off work without pay.
Government payrolls fell only 7,000 in March, partly reversing the 14,000-job gain from February. Fed Chairman Ben Bernanke, who has said the labor market must show sustained improvement before monetary stimulus is eased, has voiced concern about the spending cuts.
The jobless rate fell to its lowest since December 2008, but the report showed that much of the drop was due to the labor force shrinking by 496,000 people. The unemployment rate is derived from a survey of households which is separate from the survey of employer payrolls. The household survey actually showed employment fell by 206,000 in March. The drop in the labor force sent the share of the population that is either employed or looking for work to 63.3 percent, its lowest since 1979. Some of the people dropping out of the labor force are retiring or going back to school, but others have given up the job hunt out of discouragement.
Meanwhile, the US trade deficit unexpectedly narrowed in February as exports climbed close to an all-time high and the volume of imported crude oil fell to the lowest level in 17 years. The gap between exports and imports shrank to $43 billion in February, down 3.4 percent from January's revised $44.5 billion, the Commerce Department said Friday. It was the smallest trade imbalance since December when the gap had declined to $38.1 billion, the lowest point in nearly three years.
Exports rose 0.8 percent to $186 billion, close to the record high set in December. Stronger exports of US energy products and autos offset declines in sales of airplanes and farm equipment. Imports were flat at $228.9 billion with the volume of crude oil falling to the lowest point since March 1996. Through the first two months of this year, the U.S. deficit is running at an annual rate of $524.5 billion, down slightly from last year's $539.5 billion imbalance.
Economists expect the deficit this year will narrow slightly, in part because of continued gains in US energy exports. A narrower trade gap boosts growth because it means US companies are earning more from overseas sales while US consumers and businesses are spending less on foreign products. The economy as measured by the gross domestic product grew at an annual rate of 0.4 percent in the October-December quarter. Economists believe economic growth strengthened in the January-March quarter to around 3 percent.
In addition to increases in US energy exports, economists are also hopeful that exports of other products will rise this year as well, helped by stronger growth in some major export markets.