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Spring thaw for job market, but pay growth remains weak

The U.S. job market shrugged off its winter doldrums last month, easing concerns that the economy is cooling down.

Employers added 223,000 non-farm jobs in April, just shy of consensus estimates of 230,000, the U.S. Labor Department reported on Friday. The nation's unemployment rate dipped from 5.5 percent to 5.4 percent, its lowest level in nearly seven years.

The pace of job-creation last month marks a sharp rebound from the steep falloff in March, when payrolls rose by a meager 85,000 amid a plunge in U.S. economic output. The job categories that saw the biggest employment gains in April where professional and business services, health care and construction, while mining companies continued to pull back on hiring.

Still, the labor market is hardly cooking. Jim O'Sullivan, chief U.S. economist with High Frequency Economics, described last month's job numbers as "slightly disappointing," noting that monthly payroll gains have averaged 194,000 this year, down from 260,000 in 2014.

It's now technically Spring. But it doesn't f... 02:20

In a repeat of last year's performance, the economy entered a deep freeze in the first quarter of 2015. The nation's gross domestic product -- the total value of goods and services -- plunged to 0.2 percent in the first three months of the year, damped by harsh winter weather, shrinking overseas sales by U.S. manufacturers and a decline in spending by energy companies amid a sharp fall in oil prices.

The economy grew 2.4 percent in 2014 and 1.9 percent the previous year.

Although most forecasters expect growth to pick up, the broader economic picture is mixed, with key sectors such as manufacturing remaining soft. More worryingly, overall U.S. economic productivity has been slipping for several years, raising questions about the country's broader growth prospects.

Other readings signal a pick-up in growth. Most notably, the growing difficulty employers report in finding qualified workers and a steady decline in jobless claims point to a strengthening job market.

"The underlying story here, we think, is that employers have been rather more willing than markets to regard the first quarter slowdown as temporary," economist Ian Shepherdson of Pantheon Macroeconomics said in a note ahead of the latest government labor report.

For most Americans, perhaps the biggest economic obstacle has been the weak increase in their pay. Hourly earnings have averaged just above 2 percent during the halting recovery that has followed the housing crash, rather than the 3-4 percent more typical after a recession.

Worker earnings remain stagnant, the latest job figures make clear. Average hourly pay inched up only 0.1 percent in April, or 3 cents to $24.87, and is growing at an annualized rate of 2.2 percent, the Labor Department said.

Understanding the U.S. economy in 5 charts
Understanding the U.S. economy in 5 charts

Economists think wage growth may accelerate over the rest of the year as unemployment continues to drop and inflation ticks up. Most forecasters also expect the jobless rate, which peaked at 10 percent in 2009 and which remained well above 6 percent a year ago, to continue falling.

Sal Guatieri, a senior economist with banking firm BMO Capital Markets, thinks the rebound in job growth in April likely keeps the Federal Reserve on track to raise interest rates later this year. The central bank has kept short-term rates low since 2009 to help spur spending and investment by consumers and businesses, but many expect the Fed to start normalizing monetary policy in September.

"April's employment report was otherwise something of a mixed bag," said Paul Ashworth, chief U.S. economist, in a note. "All things considered, any lingering possibility of a June rate hike from the Fed is now off the table, with September probably the most likely lift-off date now."

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