U.S. economy added 165K jobs in April

(MoneyWatch) It could've been worse. The Labor Department said Friday that employers added 165,000 jobs in April, topping last month's weak labor growth although still short of the kind of expansion required to quickly reduce unemployment.

The unemployment rate ticked down to 7.5 percent, from 7.6 percent the previous month, and is now at a four-year low. The government also revised upward job numbers for the previous two months, putting the payroll gain at 138,000 for March and 332,000 for February.

Although the number of Americans who are out of work remained at 11.7 million, a mark of the stubbornly slow recovery since the recession officially ended in mid-2009, unemployment has fallen by 673,000 since January.

The firmer labor market, which topped consensus economic forecasts for April of 140,000 new jobs, will allay some fears that the economy was set to nosedive. Investors also appeared cheered by the news, sending stocks into record territory.

"All things considered, 165,000 isn't the biggest monthly gain in payrolls you'll every see, but it's enough to assuage concerns that the economy had stalled again," said Paul Ashworth, chief U.S. economist with Capital Economics, in a research note.

After picking up in the third quarter of last year, economic growth has weakened in recent months. Gross domestic product -- the value of all goods and services produced in the U.S. -- fell to 0.4 percent in the fourth quarter of 2012, down from 3.1 percent in the third quarter.

The economy has continued to leak air this year. Growth in the January-to-April period was 2.5 percent, below consensus forecasts that had predicted at least 3 percent growth.

The biggest restraint on growth is largely self-inflicted -- namely, the massive government spending cuts that took effect in March after Congress failed to reach a fiscal deal and a January hike in payroll taxes. Only the twin engines of housing, as home prices continue to rebound, and consumer spending have kept the recovery trudging forward. Most economists now expect overall growth for the year of 2 percent to 2.5 percent.

As the economy faltered, so has job-creation. Even with the upward revision, the number of jobs hatched in March was below the average gains of 236,000 new positions in the previous three months. The new labor data also show a significant drop in the average number of hours employees work each week, to 34.4 hours. That is a sign of weakening demand and could make employers reluctant to hire.

Other recent data have pointed to a slowdown, or "spring swoon," as some experts have dubbed the seasonal slump that has dogged the recovery over the last three years. U.S. manufacturers sharply reduced their hiring last month amid softening demand for goods, industry figures show.

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More worrying, in an economy where roughly 70 percent of economy activity is driven by consumer spending, is that Americans may be feeling the pinch of higher payroll taxes and are starting to count their pennies. Total consumer spending in the first quarter rose a robust 3.2 percent, but it fell significantly in March from the previous month.

Major economies around the globe also are losing steam, creating a further drag on growth in the U.S. Demand in China is weakening, business surveys showed this week. Europe, a major trading partner for the U.S., faces a deepening depression. Unemployment in the region has hit a record 12.1 percent, with "core" eurozone economies like Germany and France feeling the effects of the downturn.

The economic news isn't all grim. Healthy consumption has boosted key sectors. Retailers added 29,000 jobs in April, while leisure companies grew by 43,000, the Labor Department said. The number of Americans applying for jobless benefits also has fallen to a five-year low, while unemployment is receding in most larger U.S. cities. Inflation remains tame. A boom in oil production also bodes well for energy prices.

In another sign that could be a prelude to stronger hiring, growth in worker productivity -- a measure of how much work employees do per hour -- slowed in the first quarter. That's a good sign. If the economy were to strengthen in the months ahead, that could spur employers to bring in more workers to handle the stronger demand. 

"We're making slow and steady progress, with the emphasis on slow," said Ed Yardeni, head of institutional investor advisory Yardeni Research. "It's frustrating, and it must be frustrating for the Fed.... housing is OK and consumers are spending, but the economy is growing at a subpar pace."

The Federal Reserve said Wednesday that the job market has shown "some improvement" in recent months, while acknowledging that unemployment remains high.

Winding up two days of meetings this week, the central bank showed no indications that is planning to curb its policy of "quantitative easing," or large purchases of Treasury and mortgage bonds, anytime soon. The Fed said it expects economic activity to proceed at a moderate pace for now and for the jobless rate to decline gradually.

As it has underlined in previous months, the Fed said it is prepared to either step up or reduce its bond purchases as economic conditions warrant. Some experts think the Fed will begin withdrawing this stimulus by year-end.

"We continue to expect that officials will start to scale down net purchases later this year, although growth will have to start improving again first -- helped by the ongoing easing of financial conditions and some fading of fiscal drag in the second half of the year," said Jim O'Sullivan, chief U.S. economist with High Frequency Economics, in a research note before the release of the latest job numbers. "For now, officials are highlighting the possibility that purchases could be scaled up as well as down."

As Fed officials have repeatedly emphasized, however, and as history has shown, monetary policy alone can't restore the economy. As the feeblest recovery in U.S. history slogs into its fourth year, Congress must take the lead.