The U.S. job-creation engine sputtered in March as employers hired fewer workers than forecast and a shrinking labor force helped push the unemployment rate down to the lowest in four years.
Payrolls grew by 88,000, the smallest gain in nine months and less than the most-pessimistic forecast in a Bloomberg survey, after a revised 268,000 February increase, Labor Department data showed today in Washington. The jobless rate fell to 7.6 percent from 7.7 percent.
Stocks and bond yields declined as the report raised concern that federal budget cuts may be sapping growth in the world’s largest economy. The absence of sustained and bigger gains in employment and earnings underscores the Federal Reserve’s view that more progress is needed before record monetary policy stimulus can be scaled back.
“Most American companies are still lean and mean,” said Ethan Harris, co-head of global economics research at Bank of America Corp. in New York. “They’ve been very disciplined about controlling their workforce, their spending and investment. This is really a story about the fiscal austerity hitting an otherwise improving economy and delaying what should be an improvement in growth.”
The share of the working-age population in the labor force, known as the labor force participation rate, fell to 63.3 percent, the lowest since May 1979. The average number of hours worked for all employees increased in March, while earnings stagnated.
As the participation rate declines, it takes smaller gains in the number of employed to push down the jobless rate. In March, the number of unemployed Americans fell to 11.7 million, the fewest since December 2008.
The Standard & Poor’s 500 Index declined 0.4 percent to 1,553.28 at the close in New York. The yield on the benchmark 10-year Treasury note fell to 1.70 percent from 1.76 percent late yesterday.
The median of 87 estimates in a Bloomberg survey called for a 190,000 advance in payrolls. Revisions added a total of 61,000 jobs to the employment count in January and February.
The difference between today’s outcome for March and the average estimate of economists surveyed by Bloomberg was 3.5 times larger than the poll’s standard deviation, or the average divergence between what each economist forecast and the mean. The last time the report diverged as much was with the May 2012 employment report.
The dollar dropped 0.5 percent against the euro five minutes after the report was released.
Some companies are struggling to make do with fewer workers. At Wal-Mart Stores Inc. (WMT:US), merchandise is piling up in aisles and in the back of stores because the company doesn’t have enough employees to keep shelves stocked, according to interviews with workers.
In the past five years, the world’s largest retailer added 455 U.S. Wal-Mart stores, a 13 percent increase, according to filings and the company’s website. In the same period, its total U.S. workforce, which includes Sam’s Club employees, dropped by about 20,000, or 1.4 percent. Wal-Mart, based in Bentonville, Arkansas, employs about 1.4 million U.S. workers.
Retail payrolls slumped by the most since February 2012 and factory employment declined for the first time since September, today’s report showed.
“The big weakness in March was retail, and this was the coldest month of March we’ve had in over a decade,” said Russell Price, a senior economist at Ameriprise Financial Inc. in Detroit. Price is the top payrolls forecaster of the past two years, according to data compiled by Bloomberg.
Howie Appel knows doubly how tough it is to find work. The 65-year-old lost his position as a corporate recruiter at HNTB Corp. in Lake Mary, Florida, in 2009. He has worked several part-time jobs since then, he said.
One of his roles is helping others find jobs as executive director of ProNet Career Resources, an unemployment and under- employment support group he founded in 2003. Many of its members are baby boomers struggling to find opportunities as they compete with recent college graduates.
“It’s a very, very slow comeback,” he said. “We’re hearing all over the place that there are openings. We’re hearing it, but not seeing it.”
The unemployment rate, derived from a survey of households, was forecast to hold at 7.7 percent, according to the Bloomberg survey median. The figure, the lowest since December 2008, reflected a 496,000 decline in the size of the labor force.
The job market slowed progress just as $85 billion in automatic across-the-board government budget cuts, known as sequestration, started March 1. The reductions in planned spending, which began because Congress couldn’t compromise on a debt-reduction strategy, trim 5 percent from domestic agencies and 8 percent for the Defense Department this fiscal year.
“Sequestration is going to have an adverse effect” on the economy, Alan Krueger, chairman of the White House Council of Economic Advisers, said on Bloomberg Television. “That’s one of the headwinds we’re facing.”
He cited a Congressional Budget Office estimate that the enforced budget cuts will reduce employment by 750,000 by the end of the year.
Krueger repeated President Barack Obama’s call to replace the across-the-board cuts with a deficit-reduction package that includes raising more revenue from taxes in addition to trimming spending. The U.S. needs to continue spending on infrastructure and education to ensure future growth, he said.
Former Treasury Secretary Lawrence Summers said he expects healthy economic growth in the U.S. this year and next and doesn’t see a “need to panic” over the employment report.
Summers, who directed Obama’s National Economic Council for the administration’s first two years, said the economy should expand this year at a rate “north of 2.5 percent.” Next year, there’s “a good chance for above 3 percent” growth, he said in an interview on Bloomberg Television’s “Political Capital with Al Hunt,” airing this weekend.
With consumers maintaining their spending and the housing market on the rebound, the economy is well-placed to withstand the impact of federal budget cuts, said Stephen Stanley, chief economist at Pierpont Securities LLC in Stamford, Connecticut.
“There has been real fundamental improvement in some sectors of the economy,” Stanley said. “We’ve seen some surprises from the consumer, who is handling some of the stresses thrown at him at the start of the year a little bit better than expected, which gives businesses a little bit more confidence about how things are likely to play out, a little more reason to hire.”
In February, household purchases climbed the most in five months, even after the federal payroll tax was increased by two percentage points at the start of the year and gasoline prices climbed.
Businesses like Winnebago Industries Inc. (WGO:US) have had to add more workers as output increased. The Forest City, Iowa-based maker of motor homes boosted daily production 24 percent during its fiscal second quarter compared with the prior three months, partly by adding staff, according to Chief Financial Officer Sarah Nielsen.
“The lines are completely filled and running, and we’ve been hiring,” Nielsen said during a March 28 earnings call. “Our headcount at this juncture is a little bit under where we need to, but we’ve been keeping up for the most part.” The company has been adding about 20 people a week on a consistent basis, she said.
Construction (USECTOT) companies added 18,000 workers last month after a 49,000 surge in February that was the biggest in almost six years, today’s report showed.
The Pollack Shores Real Estate Group, an Atlanta-based apartment developer and property manager, has boosted employment to 120 this week from 93 at the end of 2012. The company plans to build about 2,000 apartments this year, twice as many as last year, said President Steven Shores.
“That will create a significant number of construction jobs,” which are contracted out and not on the company’s staff directly, he said. “We are starting to see a lack of labor supply drive up some pricing in our areas.”
Employers boosted hours to meet demand, today’s report showed. The average work week for all employees increased by six minutes to 34.6 hours, the highest since February 2012. And temporary-help positions, an indicator of future hiring, increased by 20,000 in March.
Private payrolls, which exclude jobs at government agencies, climbed by 95,000 in March after a revised gain of 254,000 the previous month. Government payrolls decreased by 7,000 last month after a 14,000 increase.
Fed officials are waiting for sustained signs of job-market resilience before winding down their $85 billion of monthly bond purchases. Central bank policy makers reiterated in a March 20 statement that they would continue to buy securities until the labor market outlook improves “substantially.” Each month the Fed is purchasing Treasuries and mortgage bonds to keep interest rates low, spur economic growth and reduce unemployment.
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