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U.S. unemployment rate dips despite tepid job growth

Associated Press
April 5, 2013
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U.S. employers added just 88,000 jobs in March, the fewest in nine months and a sharp retreat after a period of improved hiring. The slowdown may signal that the economy is heading into a weak spring.

The Labor Department said Friday that the unemployment rate dipped to 7.6 percent, the lowest in four years, from 7.7 percent. But the rate fell only because more people stopped looking for work. People who are out of work are no longer counted as unemployed once they stop looking for a job.

The percentage of Americans working or looking for jobs fell to 63.3 percent in March, the lowest such figure in nearly 34 years.

The Dow Jones industrial average fell 119 points, to 14,485, as of 10:57 a.m.  It was down as much as 171 points in the early going, the worst drop for the Dow since Feb. 25.

March's job gains were less than half the average of the previous six months, when the economy added an average of 196,000 jobs a month. The government said hiring was even stronger in January and February than previously estimated. January's job growth was revised up from 119,000 to 148,000. February's was revised from 236,000 to 268,000.

Several industries cut back sharply on hiring in March. Retailers cut 24,000 jobs after averaging 32,000 in the previous three months. Manufacturers cut 3,000 jobs after adding 19,000 the previous month. Financial services shed 2,000.

The number of people either working or looking for work fell by nearly 500,000 last month. It was sharpest such drop since December 2010. And the number of Americans who said they were employed dropped nearly 210,000.

Average hourly pay rose a penny, the smallest gain in five months. Average pay is just 1.8 percent higher than a year earlier, trailing the pace of inflation, which rose 2 percent in the past 12 months.

"This is not a good report through and through," Dan Greenhaus, chief economic strategist at brokerage firm BTIG, said in a note to clients.

Economists had hoped that the bigger pay increases in recent months would continue and boost Americans' ability to spend.

Some economists said they expect a slowdown this spring, though not as severe as in the past three years.

"We don't anticipate the slowdown becoming too severe, not when the housing recovery is firing on all cylinders, but it is a reminder that the U.S. is still unable to sustain what used to be just average rates of growth," said Paul Ashworth, an economist at Capital Economics.

The decline in the work force reflects several trends, economists say: Many of those out of work become discouraged and give up on their job hunts. And as the population ages, more people are retiring.

Most analysts think the economy strengthened from January through March, helped by the pickup in hiring, a sustained recovery in housing and steady consumer spending. Consumers stepped up purchases in February and January, even after Social Security taxes increased this year.

Still, the higher taxes have reduced paychecks. And many economists say steep government spending cuts that began taking effect March 1 will slow growth in the spring and summer.

Mark Vitner, an economist at Wells Fargo Securities, thinks the economy expanded at a 3.2-percent annual rate in the first quarter. But he forecasts that growth will slow to a 2-percent annual pace in the current second quarter, and then rebound after the impact of the government spending cuts fades.

Economists expect the spending reductions will shave half a percentage point off economic growth this year. Many federal workers will experience pay cuts. And government contractors will likely cut jobs. That could also drag down overall monthly hiring.

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