U.S. job growth recovers, keeps 2015 Fed rate rise in play

Fri May 8, 2015 4:49pm EDT
 
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By Lucia Mutikani

WASHINGTON (Reuters) - U.S. job growth rebounded last month and the unemployment rate dropped to a near seven-year low of 5.4 percent, suggesting underlying strength in the economy at the start of the second quarter that could keep alive prospects for a Federal Reserve rate hike later this year.

Nonfarm payrolls increased 223,000 as gains in services sector and construction 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 labor market.

However, wage growth was tepid and March payrolls were revised downward, leading financial markets to push back rate hike bets.

"We see this report as reducing concerns that weak first-quarter growth represents a loss of economic momentum," said Michael Gapen, chief U.S. economist at Barclays in New York.

Nevertheless, he said the bounce back was not strong enough to think the Fed could bump rates higher before September.

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, underscoring the weakness in activity at the start of the year.

Investors on Wall Street cheered the report. U.S. stocks ended the session more than 1 percent higher.

Yields on U.S. Treasury debt dropped and futures contracts showed traders clinging to bets the U.S. central bank would raise rates from near zero this year.   Continued...

 
Job seekers browse tables at a veterans' job fair in Burbank, Los Angeles, California March 19, 2015.  REUTERS/Lucy Nicholson