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U.S. April employment data to point to sluggish economy

Unemployment graphic (Reuters)
Unemployment graphic (Reuters)

By Lucia Mutikani

WASHINGTON (Reuters) - U.S. employment growth likely picked up in April, but probably not by enough to counter other signs that suggest the economy has lost a step in recent weeks.

Nonfarm payrolls are expected to have increased by 145,000 jobs, according to a Reuters survey of economists, after braking to a nine-month low of 88,000 in March. Taken together, the job creation pace over the past two months would still be far below the average of 200,000 for the first two months of this year.

"That would be consistent with an economy that's losing growth momentum but hasn't fallen out of bed," said Millan Mulraine, a senior economist at TD Securities in New York.

Although the economy grew at a 2.5 percent annual pace in the first quarter, data on construction spending, retail sales and trade suggested it ended the period with less speed.

Factory data for April imply the loss of momentum persisted early in the second quarter, setting the stage for a replay for a third straight year of what economists have called the spring swoon.

Economists say uncertainty over the full impact of higher taxes and deep government spending cuts on already sluggish demand was making businesses reluctant to hire. A 2 percent payroll tax cut ended at the start of the year, and $85 billion in federal budget cuts went into effect on March 1.

The forecast job gains should be just enough to hold the unemployment rate at a four-year low of 7.6 percent, though the rate could even fall as older Americans retire and younger people give up the hunt for work in frustration.

The labor force participation rate - the share of working-age Americans who either have a job or are looking for one - hit a 34-year low in March.

"We need more than 3 percent growth on a sustained basis to make real inroads in reducing not only the number of those counted as unemployed, but the legions of those who are nowhere to be found in the labor force data," said Patrick O'Keefe, head of Economic Research at CohnReznick in Roseland, New Jersey.

The Labor Department will release its April employment report on Friday at 8:30 a.m. (1230 GMT).

HIGH BAR FOR FED

The continued sluggishness of job growth would likely bolster the resolve of the Federal Reserve to push forward with its efforts to spur a stronger recovery.

On Wednesday, the U.S. central bank said it would continue to buy $85 billion in bonds each month and keep on buying until the labor market outlook improved substantially. It even said it would step up purchases should the need arise.

"They have sort of tied their hand here; they set a very high bar for what constitutes a satisfactory improvement in the job market," said Robert DiClemente, chief economist at Citigroup in New York. "This number will be a reminder that we are not there yet."

Economists are divided on the impact government spending cuts may have had on employment in April. Some see a minor hit, arguing that the government has been reducing hours for workers instead of resorting to outright lay-offs.

Others, however, say there have been job losses in industries such as defense contracting. However, first-time applications for state unemployment benefits have shown no sign of a pick-up in lay-offs and rose in only one week in April.

"At the margin, the sequester is having an impact. You might see it in the hours worked rather than payroll jobs," said John Canally, an economist for LPL Financial in Boston.

While reducing hours keeps more people on the payroll, it does cut into economic growth.

The composition of job growth in April is expected to be fairly encouraging, although little change is anticipated in manufacturing employment, which fell in March for the first time since September.

Construction employment is seen snapping back after being slowed by unusually cold weather in March. That would mark an 11th straight month of gains, thanks to a recovering housing market.

Job gains in the private services sector are expected to have picked up from March's nine-month low, although the retail sector remains a wild card. Retail employment fell in March after eight straight monthly increases.

Government payrolls are expected to have dropped by about 15,000 jobs in April after falling by 7,000 in March. Most of the drag is expected to come from the U.S. Postal Service, which economists think continued to pare its workforce even after about 12,000 workers departed in March.

The report is expected to show average hourly earnings rose by 0.2 percent after being flat in March.

The length of the average workweek is expected to have held steady at a nine-month high of 34.6 hours, but government furloughs could weigh.

(Reporting by Lucia Mutikani; Editing by Tim Ahmann and Dan Grebler)

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