The U.S. economy added more jobs than forecast in March and the unemployment rate unexpectedly declined to a two-year low of 8.8 percent, a sign the labor- market recovery is gathering speed.
Payrolls increased by 216,000 workers last month after a revised 194,000 gain the prior month, the Labor Department said today in Washington. Economists projected a March gain of 190,000, according to the median estimate in a Bloomberg News survey. A separate report today showed manufacturing expanded at close to the fastest pace in seven years.
U.S. stocks climbed and the dollar strengthened as the report showed the world’s largest economy is weathering the highest energy prices in more than two years. Record exports and gains in business and consumer spending are prompting companies like Chrysler Group LLC and Kohl’s Corp. (KSS) to boost staff, underlining the Federal Reserve’s assessment last month that the recovery is on a “firmer footing.”
“It’s certainly indicative of continuing improvement in the labor market, with two months in a row of really solid private payrolls,” said Stephen Stanley, chief economist at Pierpont Securities LLC in Stamford, Connecticut, who forecast a gain of 210,000 jobs. “It’s not a blow-out number but all in all, it’s a good report.”
Manufacturing expanded in March at about the same pace as February, the strongest month since May 2004. The Tempe, Arizona-based Institute for Supply Management said its manufacturing index was little changed at 61.2 in March compared with 61.4 a month earlier. Readings greater than 50 signal expansion. The median forecast of 79 economists surveyed by Bloomberg News was 61.1.
Stocks Gain
The Standard & Poor’s 500 Index gained 0.8 percent to 1,336.13 at 10:26 a.m. in New York. The dollar strengthened to 84.53 yen per dollar from 83.13 yen late yesterday. The yield on the 10-year Treasury note rose to 3.48 percent from 3.47 percent.
Payroll estimates in the Bloomberg survey of 83 economists ranged from gains of 150,000 to 295,000. February was revised up from a previously reported gain of 192,000, while January payrolls increased 68,000 after a prior estimate of 63,000. The unemployment rate was projected to hold at 8.9 percent, according to the survey median.
The jobless rate dropped from 8.9 percent in February, the fourth straight decrease.
‘Still Tenuous’
Federal Reserve Bank of New York President William Dudley said the recovery is “still tenuous” and “far from the mark” of the central bank’s goals of price stability and full employment, indicating today’s payrolls report is unlikely to change the Fed’s plans to buy $600 billion of Treasuries through June.
“We must not be overly optimistic about the growth outlook,” Dudley said today in a speech in San Juan, Puerto Rico, after the payrolls report. “A stronger recovery with more rapid progress toward our dual mandate objectives is what we have been seeking. This is welcome and not a reason to reverse course.”
The Fed, after its latest policy meeting March 15, pledged to continue its program of bond purchases in order to “promote a stronger pace of economic recovery.” Policy makers acknowledged a rise in commodity prices, signaling deflation risk had diminished and they were unlikely to expand the bond purchase plan.
Bill Gross, manager of the world’s biggest bond fund at Pacific Investment Management Co., said the gain in employment suggests the Fed’s policy is working.
Relay Race
“Their objective obviously is to improve the economy and to create jobs but also to put a floor under the stock market, and we know that’s working,” Gross said in a radio interview on “Bloomberg Surveillance” with Tom Keene. “The question remains, when the Fed stops buying Treasuries, does the private sector take the baton and run the last leg of the relay race? We have doubts as to whether that remains the case.”
Private hiring, which excludes government agencies, rose by 230,000 in March, more than the median 206,000 median forecast in the Bloomberg survey, after a 240,000 increase in February. The back-to-back gain was the biggest since February-March 2006.
Chrysler, aiming for its first net profit since emerging from bankruptcy in 2009, plans to hire 1,000 engineers and high- tech workers for its small and midsized vehicles. The Auburn Hills, Michigan-based company is also urging its dealers to hire more salesmen and service workers to help boost sales by 32 percent this year.
Spring Market
“Hiring additional personnel in preparation for the spring market is essential for success in 2011,” Peter Grady, vice president of Chrysler’s network development and fleet, said in a memo to dealers last month.
Kohl’s said this week that it plans to open a new e- commerce distribution center in Edgewood, Maryland, in July and hire 1,200 workers over the next three years.
While companies stepped up hiring, earnings and hours stagnated. Average hourly earnings held at $22.87 in March, today’s report showed, while the average work week for all workers stayed at 34.3 hours.
The separate survey of households showed the size of the labor force increased by 160,000 in March and employment grew by 291,000. That pushed the share of the population in the labor force up to 58.5 percent from 58.4 percent a month earlier.
Government payrolls decreased by 14,000 last month reflecting cuts at the local level. Federal government employment rose by 1,000. Factory payrolls increased by 17,000 last month, less than the survey forecast of a 30,000 gain.
Service Providers
Employment at service-providers rose 185,000 in March, the most since May 2010. Temporary-help services companies added 28,800 workers last month. Health care and leisure and hospitality businesses also boosted payrolls. Construction payrolls fell 1,000 and retail trade employment increased 17,700.
The March jobs reading is likely be the first of the year that wasn’t skewed by weather. Winter storms constrained payrolls in January, prompting a February rebound when temperatures were closer to normal for the month.
Economic growth accelerated to a 3.1 percent annual rate in the fourth quarter of 2010 as consumer spending climbed by the most in four years.
Oil prices that closed at $106.72 yesterday, the highest since September 2008, may keep climbing should Middle East political turmoil continue unabated, raising the risk that consumer spending will slow in coming months.
Japan Earthquake
U.S. companies are still trying to gauge the effects of the March 11 earthquake in Japan and the subsequent nuclear crisis on international supply chains. Toyota Motor Corp. expects assembly interruptions that may affect North America plants.
The so-called underemployment rate -- which includes part- time workers who’d prefer a full-time position and people who want work but have given up looking -- fell to 15.7 from 15.9 percent.
The report also showed an increase in long-term unemployed Americans. The number of people unemployed for 27 weeks or more rose to 45.5 percent of all jobless.
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