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U.S. jobs report exceeds expectations

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By James Politi in Washington and Michael Mackenzie in New York

Staff hired at fastest pace in over two years; Investors focus on weaknesses in data

US employers hired new staff at the fastest pace in more than two years in April, offering fresh signs of gathering momentum in the world’s largest economy.

The economy added 288,000 jobs last month, the most since 2012 and much more than the 218,000 expected by economists. The jobs report also contained upward revisions for February and March, worth a combined 36,000 jobs, while the unemployment rate fell to 6.3 per cent.

The Federal Reserve will see the buoyant figures as vindication of its decision to continue reducing or “tapering” its asset buys at a rate of $10bn a month.

It has now cut the pace of quantitative easing by almost half – from $85bn per month in December to $45bn per month – and is on track to end the programme entirely this year.

This week, data showed growth in the US economy had essentially stalled in the first quarter – expanding at an annualised rate of just 0.1 per cent. Yet many economists dismissed this as a blip caused by an extreme winter and argued that the US would perform more strongly in the second quarter and the rest of the year.

“The labour market remains surprisingly and resiliently strong,” said Bart van Ark, chief economist of the Conference Board, although he said that the large gain in April was “aided by some catch up” that might not have happened were it not for the “widespread inclement weather”.

Some economists suggested the strong jobs number could convince the Fed to raise interest rates sooner than expected. Michael Feroli of JPMorgan said that the data “tilts the risk” towards a rate rise before the bank’s current forecast for late 2015.

“Given the remarkable pace at which slack is being absorbed, the Fed may feel it cannot afford to sit on its hands,” Mr Feroli said.

But there were some significant underlying weaknesses in the data and were unimpressed. Equities lost momentum after opening higher on the strong headline number, while the 10-year Treasury yield fell slightly.

The most discouraging element came in the separate but more volatile household survey, where the big dip in the jobless rate was driven entirely by the more than 806,000 Americans who exited the labour force.

The labour force participation rate dropped from 63.2 per cent in March to 62.8 per cent, matching a 36-year low hit in December. Flat wage growth sounded another bleak note.

“While the numbers are better than expected, they are long on sizzle and low on steak,” said Guy LeBas, chief fixed-income strategist at Janney Montgomery Scott.

President Barack Obama said “the grit and determination of the American people are moving us forward” and urged Congress to back policies such as raising the minimum wage. (FT)

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