US job creation unlikely to reduce unemployment rate

The US economy is likely to have added jobs last month for only the second time since the recession began 27 months ago.

That, economists say, would mark a significant turning point in the nation’s recovery, signalling the worst is over and that more job creation could be on the way in the months ahead.

However, they say it does not mean enough new jobs are being created to bring down the unemployment rate.

The Labour Department’s March unemployment report is released later today.

Economists are forecasting that 190,000 jobs were created last month – the most in the past three years. But the unemployment rate is forecast to stay at 9.7% for the third month in a row, according to economists surveyed by Thomson Reuters.

As many as 100,000 of the job gains could reflect temporary hiring for the US Census. Roughly 50,000 more might simply be a rebound from February, when massive snowstorms on the east coast kept some workers off company payrolls.

That would leave a respectable 40,000 new jobs created by private employers. Much of the gains are likely to come from the healthcare and temporary help industries.

“It would be a signal that business confidence is gradually improving to the point that they’re ready to hire,” said Brian Bethune, chief US financial economist at IHS Global Insight.

More jobs would enable a bump in consumer spending, which accounts for roughly 70% of the economy. But without significant wage gains – incomes have been sluggish in the past year – growth will be restrained.

Many economists expect only modest job gains this year that will not quickly reduce the unemployment rate. Both the Federal Reserve and the Obama administration expect unemployment will be well above 9% by the end of this year.

The factory sector is growing at a healthy pace. The Institute for Supply Management, a trade group of purchasing executives, said its gauge of industrial company activity rose to 59.6 in March, the fastest growth since July 2004. A level above 50 indicates growth.

Manufacturing data released from China, Britain and the 16 countries using the euro also showed a surge in activity in March.

Manufacturers are benefiting from a robust recovery in Asia and parts of Latin America and increased business investment in the US.

Job creation is likely to remain weak for years to come, in part because US factories have become more efficient, producing more goods with fewer workers. On top of that, the sector’s contribution to the overall economy has been shrinking for decades due to competition from China and other countries where factory workers are paid much less.

Another reason the job-growth engine is stuck in a low gear is that the building sector remains extremely weak in the aftermath of the housing bust.

Construction spending fell sharply in February to its lowest level in eight years, the Commerce Department said yesterday. Spending fell particularly hard in commercial ventures, such as hotels and office buildings.

The weak jobs market showed signs of stabilising on Thursday. The Labour Department said new claims for jobless benefits dropped by 6,000 last week, to a seasonally adjusted 439,000. It was the fourth decline in five weeks, a signal that the pace of layoffs is slowing.