U.S. job growth regains steam, keeping Fed rate hike on track

US job growth rebounded last month and the unemployment rate dropped to a near seven-year low of 5.4 per cent, signs of a pick-up in economic momentum that could keep the Federal Reserve on track to hike interest rates this year.

Nonfarm payrolls increased 223,000 as gains in services sector jobs offset weakness in mining, the Labor Department said on Friday. The one-tenth of a percentage point decline in the unemployment rate to its lowest level since May 2008 came even as more people piled into the labour market.

The report, which showed steady but tepid gains in hourly earnings, suggested underlying strength in the economy at the start of the second quarter after a bad stumble in the first three months of the year.

Still, March payrolls were revised to show only 85,000 jobs created, the fewest since June 2012. That resulted in 39,000 fewer jobs added in February and March than previously reported.

“This report was darn close to the Goldilocks scenario. However, the revisions are somewhat of a concern,” said Russell Price, senior economist at Ameriprise Financial Services in Tory, Michigan.

Stock investors cheered the report, with the Standard & Poor’s 500 index shooting up more than 1 per cent at the open, as investors saw the data suggesting less urgency for the Fed to lift benchmark overnight rates from near zero.

Yields on US Treasury debt slipped and futures contracts showed traders barely clinging to bets the US central bank would raise rates this year. The dollar was little changed against a basket of major currencies.

“We may see a further acceleration in employment growth going into the summer, but this isn’t the sort of unequivocal rebound that would give the Fed the confidence to begin tightening monetary policy before Independence Day,” said Paul Ashworth, chief US economist at Capital Economics in Toronto, referring to the July 4 holiday.

<b>Labour market tightening</b>

The drop in the unemployment rate pushed it within a whisker or two of the 5.0 per cent to 5.2 per cent range that most Fed officials consider consistent with full employment.

Also encouraging, the labour force participation rate, or the share of working-age Americans who are employed or at least looking for a job, rose 0.1 percentage point to 62.8 per cent, although that was just up from a 36-year low.

Other measures on the Fed’s so-called dashboard also improved further.

A broad measure of joblessness that includes people who want to work but have given up searching and those working part-time because they cannot find full-time employment fell to 10.8 per cent — the lowest level since August 2008.

In addition, the number of long-term unemployed continued to fall.

Wages, however, were a weak spot. Average hourly earnings rose just three cents in April. While that took the year-on-year gain to 2.2 per cent, it remained stuck in the range it has been in for the past few years.

Last month, the government reported that the economy expanded at only a 0.2 per cent annual rate in the first quarter, but data earlier this week showing a wider-than-forecast trade deficit suggests GDP actually shrank.

There was a broad-based acceleration in job growth in April, with the exception of the mining sector, where a plunge in crude oil prices has undercut energy production.

Schlumberger, the world’s No.1 oil-field services provider, said last month it would cut a further 11,000 jobs, bringing total layoffs this year to 20,000. Baker Hughes and Halliburton  have also announced thousands of redundancies.

Mining payrolls fell 15,000, logging the fourth straight month of declines. Manufacturing employment increased 1,000 after being flat in March as factories struggle with a strong dollar. Construction payrolls jumped 45,000 after falling 9,000 in March.

Private services employment rose 182,000 and government payrolls increased 10,000.