U.S. February Payrolls Rise 97,000; Jobless Rate Down (Update2)

By Joe Richter

March 9 (Bloomberg) -- The U.S. unemployment rate unexpectedly fell last month and employers added 97,000 jobs, easing concerns that the economic slowdown is getting worse.

The jobless rate declined to 4.5 percent, close to a five- year low, the Labor Department said today in Washington. Employment growth the prior month was revised higher to 146,000. A separate government report showed the trade deficit narrowed.

The figures damped speculation the Federal Reserve will be forced to reduce interest rates soon to limit the damage from a housing recession, rising subprime loan defaults and a factory downturn. The dollar strengthened and Treasuries declined.

``The labor market is just quite solid,'' said Julia Coronado, an economist at Barclays Capital Inc. in New York. ``This is a very important indication that the economy is on track.''

The trade deficit narrowed in January as imports fell and expanding economies in Europe and Asia boosted demand for American goods, the Commerce Department said today. The gap between imports and exports shrank 3.8 percent to $59.1 billion in January, from $61.5 billion.

The yield on the benchmark 10-year note rose 7 basis points to 4.58 percent at 8:58 a.m. in New York. Traders and investors expected employers added 75,500 non-farm workers in February, according to an auction of economic derivatives by the Chicago Mercantile Exchange before the report.

Economists projected payrolls would rise by 95,000 following a previously reported 111,000 January increase, according to the median of 80 forecasts in a Bloomberg News survey. Estimates ranged from increases of 38,000 to 165,000. Economists also projected a 4.6 percent unemployment rate.

Revisions

Revisions for the previous two months showed employers added 55,000 more jobs than the Labor Department had earlier estimated.

Workers' average hourly earnings rose 6 cents, or 0.4 percent, after rising 0.2 percent the previous month. Economists expected a 0.3 percent increase in hourly wages. Earnings were up 4.1 percent from February 2006, the same as the previous month's gain.

Builders cut 62,000 jobs, the biggest decline since January 1991, after adding 28,000 the prior month.

Weather played a part in the drop in construction jobs. Planalytics Inc., a Wayne, Pennsylvania-based weather consulting firm, said a winter storm system that swept from the Midwest through the East Coast was the ``largest and most disruptive'' of the year. The South experienced thunderstorms, while widespread rainfall was reported in the Pacific Northwest.

Poor weather kept 505,000 people from working in February, more than twice as many as a year earlier, the Labor Department said.

Service Industries

Service-producing industries, which include banking, insurance, restaurants and retailers, added 168,000 workers last month after hiring 120,000 in January, the report showed.

Manufacturers reduced payrolls by 14,000 last month after cutting 2,000 jobs a month earlier. Economists expected manufacturers to eliminate 19,000 positions. The manufacturing workweek held at 40.8 hours and overtime rose to 4.2 hours from 4.1 hours.

Excess Inventories

Manufacturers are limiting hiring as they struggle to reduce excess inventories built up last year. Orders placed with U.S. factories fell 5.6 percent in January, the most in more than six years, a Commerce Department report showed this week.

Average weekly hours worked by production workers fell to 33.7 from 33.8. Economists in the Bloomberg survey had forecast hours would hold at 33.8.

Average weekly earnings rose to $578.29 last month from $577.98 in January.

``Most districts noted further expansion in labor markets and continued tight supply of skilled and professional workers,'' the Federal Reserve said March 7 in its regional survey known as the beige book. ``Wage pressures increased slightly in several districts, although pay increases generally remained moderate across the country.''

A third of the Fed's 12 district banks reported some signs of weakening growth. Fed Bank of Chicago President Michael Moskow said the same day that concern about high inflation still outweighs the risk of slower economic growth.

Housing Slump

The housing slump is taking a toll. The economy expanded at an annual rate of 2.2 percent in the fourth quarter as residential construction posted its biggest decline since 1991. Growth slowed from a 4.1 percent average rate in the first half.

Housing won't bounce back soon, recent reports suggest. Construction spending in the U.S. fell by the most in three months in January, a report last week showed, pulled lower by the biggest decline in homebuilding since July.

The reports help explain why economists surveyed by Bloomberg News this month expect little acceleration in the economy in the first half of this year.

The economy may expand at a 2.4 percent annual rate this quarter, according to the median estimate of 75 economists surveyed by Bloomberg News from March 1 to March 7. Growth will end the year at a 3 percent pace, the survey showed.

Consumer spending, which accounts for about 70 percent of the economy, has helped prevent a sharper slowdown. Purchases rose at a 4.2 percent annual rate last quarter, a pace that's likely to slow to 3.2 percent this quarter, according to the survey.

`Mainstay' of Economy

``Consumer spending continues to be the mainstay of the current economic expansion,'' Federal Reserve Chairman Ben S. Bernanke said in congressional testimony last month. He said he expects the economy to improve in the second half.

James Flaws, chief financial officer of Corning Inc., said that while ``no one is anticipating a recession,'' companies are hiring selectively. Corning, which makes fiber-optic gear for networks, plans to add workers in some businesses, Flaws said.

``In general, what I would hear from my colleagues, other CFOs, is caution, being careful about adding too much staff,'' Flaws said in a March 7 interview.

A survey released this week by the Business Roundtable in Washington showed that confidence among U.S. chief executives rose in the first quarter for the first time in a year.

Business Spending

More companies told the Business Roundtable they plan to boost spending on new plants and equipment.

Toyota Motor Corp., the world's second-largest automaker, plans to build a $1.3 billion assembly plant in Mississippi to meet soaring U.S. demand. The Toyota City, Japan-based company, which last year opened its sixth North American auto plant in San Antonio, expects to employ 2,000 people at the Mississippi plant.

To contact the reporter on this story: Joe Richter in Washington Jrichter1@bloomberg.net

Last Updated: March 9, 2007 09:04 EST

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