WASHINGTON (Reuters) - U.S. employers hired workers at the fastest clip in more than two years in April, pointing to a rebound in economic growth after a dreadful winter and keeping the Federal Reserve on track to end bond purchases this year.
The brightening outlook was, however, tempered somewhat by a sharp increase in the number of people dropping out of the labor force, which pushed the unemployment rate to a 5-1/2-year low of 6.3 percent. Wage growth also was stagnant.
Nonfarm payrolls surged 288,000 last month, the Labor Department said on Friday. That was largest gain since January 2012 and beat economists’ expectations for only a 210,000 rise.
“It lends significant legitimacy to the positive tone in the wide array of post-February economic reports, which have all been consistently pointing to a significant pick-up in economic growth momentum this quarter,” said Millan Mulraine, deputy chief economist at TD Securities in New York.
March and February’s data was revised to show 36,000 more jobs than previously reported.
U.S. stocks briefly rallied on the report, which was later eclipsed by rising tensions in Ukraine. Stocks ended lower, while safe-haven bids pushed the yield in the 30-year U.S. government bond to its lowest level in more than 10 months.
The dollar was flat against a basket of currencies.
About 806,000 people dropped out of the labor force in April, unwinding the previous months’ gains. That helped to push down the unemployment rate 0.4 percentage point to its lowest level since in September 2008.
The labor force participation rate, or the share of working-age Americans who are employed or unemployed but looking for a job, also fell four-tenths of a percentage point to 62.8 percent last month, slipping back to a 36-year low touched in December.
Overall, however, the data suggested the economy was gathering strength and led investors to pull forward their bets on when the Fed will start to raise interest rates.
The strong payrolls growth added to upbeat data such as consumer spending and industrial production in suggesting that sputtering growth in the first quarter was an aberration, weighed down by an unusually cold and disruptive winter.
The Fed on Wednesday shrugged off the dismal first-quarter performance. The U.S. central bank, which announced further reductions to the amount of money it is pumping into the economy through monthly bond purchases, said indications were that “growth in economic activity has picked up recently.”
“It also matches well with the Fed’s expectations for the labor market, excluding the sharp unemployment rate drop, and likely means more $10 billion dollar reductions in monthly asset purchases at future meetings,” said Scott Anderson, chief economist at Bank of the West in San Francisco.
Economists expect second-quarter gross domestic product to top a 3 percent pace. Last month’s drop in the labor force could have been driven by some of the 1.35 million people who lost their longer-term unemployment benefits at the end of last year.
Since they are no longer receiving unemployment benefits they have little incentive to continue looking for work as required by law. Part of the decline in participation in the labor market also reflects changing demographics, as well as people going on disability while waiting to reach retirement.
“Baby boomers are retiring and the various government benefits including disability are contributing to the drop in the participation rate,” said Sung Won Sohn, an economics professor at California State University Channel Islands in Camarillo, California.
Still there is little doubt the labor market is strengthening. A broad measure of unemployment, which includes people who want to work but have stopped looking and those working only part time but who want more work, fell to a 20-year low of 12.3 percent in April. It was at 12.7 percent in March.
In addition, the number of people who have been unemployed for more than six months saw its biggest decline since October 2011 and the average duration of unemployment fell to 35.1 weeks from 35.6 weeks in March.
The short-term jobless rate hit a new cycle-low of 4.1 percent. Employment gains in April were broad-based, with the private sector adding 273,000 jobs and government payrolls rising 15,000. Manufacturing employment increased 12,000 after rising 7,000 in March.
Construction payrolls gained 32,000 after increasing 17,000 in March. The hiring trend could slow in the months ahead as residential construction loses some steam.
Despite the strong gains, average hourly earnings were flat in April, pointing to lack of wage pressure and still ample slack in the economy.
“There is just no sign of any broad-based wage pressure,” said Josh Feinman, chief global economist at Deutsche Asset & Wealth Management in New York. “There is still slack in the labor market and with labor costs still dead in the water, the Fed is probably not going to have to rush (to raise rates).”
The length of the workweek held steady at 34.5 hours last month after bouncing back in March from its winter-depressed levels.
Reporting by Lucia Mutikani; editing by Andrea Ricci and Andrew Hay