Decline in labor force tempers response to drop in jobless rate

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Posted: Friday, May 2, 2014 12:00 am

The U.S. economy picked up steam in April, as employers added 288,000 jobs, and the unemployment rate fell from 6.7 percent to 6.3 percent, the lowest level since September 2008.

After a sharp slowdown in job growth in December and January, and a modest improvement since then, economists had been forecasting a healthy gain for April as consumer and business activity rose in tandem with temperatures in many parts of the country.

But the good news was tempered by a drop of 806,000 in the number of Americans in the labor force, pushing the labor participation rate down sharply. And despite the fall in joblessness, average hourly earnings were flat.

“The payroll numbers suggest that the economy is recovering from a weather-induced showdown,” said Ethan Harris, co-head of global economics at Bank of America Merrill Lynch. But “even with the drop in the unemployment rate,” he said, “we still have not reached to point where workers have negotiating power.”

That contradiction — more employers finally beginning to hire workers at a more aggressive clip, but little or no improvement in weekly paychecks for the 146 million Americans who already have jobs — presents a challenge both for politicians and for policymakers at the Federal Reserve.

The Fed has been gradually stepping back from its stimulus efforts this year, a stand validated somewhat by the fall in the unemployment rate, but the lack of wage growth undermines claims by both the Fed and some elected officials that a resurgent economy is at hand.

Government statisticians on Friday also revised upward the number of jobs added in February and March by a total of 36,000, suggesting that the economy was stronger than first assumed.

The 288,000 figure for April was the best monthly increase since January 2012.

Many private-sector economists said they were pleasantly surprised by the size of the payroll gain.

“It’s as good as I could have expected,” said Ian Shepherdson, the chief economist at Pantheon Macroeconomics. “It was either a post-winter catch-up, or the start of a stronger trend. There’s no way to know yet, but I’m happy either way.”

More telling than any one month’s change is the average monthly gain in payrolls over the last year, which now stands at 197,000. So, April’s data show a significant improvement over the longer-term average.

The consensus among economists polled by Bloomberg before the Labor Department’s announcement Friday called for an increase of 218,000 in nonfarm payrolls.

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