U.S. jobless rate falls despite weak April

The U.S. Labour Department says that the American economy created only 115,000 jobs during April but that was enough to push the unemployment rate to a three-year low.

Economists had been expecting the U.S. would add 160,000 jobs in April, although the shortfall was offset by 53,000 additional jobs in revisions for the previous two months.

As a result, the U.S. unemployment rate edged down 0.1 of a point to 8.1%.

BMO economist Sal Guatieri says the upward revisions removed some of the sting from the weak April report.

He says business services, retail and manufacturing sectors in the United States added moderate number of jobs while construction was down for the third month.

“Some of the sting of the weak 115,000 increase in jobs in April was taken away by the revision that took March up to 154,000 from 120,000,” writes Nigel Gault, chief U.S. economist, IHS Global Insight. “But the two-month slowdown is still very clear. Job growth in March and April averaged 135,000, down from an average 252,000 per month in the three months to February. And though the unemployment rate fell in March and April, both drops reflected fewer people looking for work, not more employment.”

The stronger jobs growth had inspired hopes that GDP growth would accelerate to match, but the opposite has turned out to be the case, with job growth slowing to match GDP.

“We think that the March and April payroll figures understate the pace of recovery, and we look for a better but still subdued pace of job creation in the 150,000-200,000 region over the rest of the year,” Gault writes. “If that’s right, the Fed probably won’t be tempted to launch QE3.”

Michael Gapen, director, U.S. economic research at Barclays Capital predicts the unemployment rate will fall to 7.7% in the fourth quarter of this year, and continue its decline to 7.0% by the end of 2013.

“A falling unemployment rate lowers the probability of further Fed asset purchases, but its persistence above the Fed’s estimates of the natural rate suggest that policy will remain on hold at least through 2013,” writes Gapen.

“Nonetheless, we believe the faster-than-expected improvement in labor market conditions will eventually lead the Fed to alter its rate guidance in favor of an earlier exit from accommodative policies. Allowing for some recognition lags by policymakers, we believe a rise in inflation above its objective in the medium term is likely.

Staff, with files from The Canadian Press

The Canadian Press is a national news agency headquartered in Toronto and founded in 1917.