U.S. Economy Adds Just 88,000 Jobs

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• ECONOMY
• Updated April 5, 2013, 10:50 a.m. ET

Unemployment Rate Falls One-Tenth of a Percentage Point to 7.6%

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By JEFFREY SPARSHOTT And JOSH MITCHELL

The unemployment rate ticked down to 7.6% in March while only 88,000 non-farm payrolls were added to the economy. Sudeep Reddy and Phil Izzo analyze the numbers. Photo: Getty Images.

WASHINGTON—U.S. employers added jobs at the slowest pace in nine months in March, suggesting weakening economic growth as higher taxes and government spending cuts weigh on the labor market.

Employers added 88,000 jobs last month, the Labor Department said Friday. The unemployment rate, obtained by a separate survey of U.S. households, fell one-tenth of a percentage point to 7.6%, largely because of people dropping out of the work force.

There’s no way to sugarcoat it: This was a lousy March employment report. Ben Casselman discusses takeaways from the jobs data. Photo: AP.

Economists surveyed by Dow Jones Newswires expected nonfarm payrolls to rise by 200,000.

"This is an extremely troubling labor-market report, given how strongly stocks have rallied and how much expectations have been lifted with optimism around the consumer and housing," said Scott Anderson, economist at Bank of the West.

The effect of higher taxes and federal-government spending cuts, known as the sequester, is "readily apparent," Mr. Anderson said.

Stocks were broadly lower in early trading Friday following the release of the data.

Separate reports this week showed that manufacturing and service-sector activity decelerated in March. Some economists have cautioned that technical factors might be partly to blame for recent disappointments in economic data.

The Nonfarm Payrolls Report

Friday's jobs report shows that talk of an early end to the Federal Reserve's bond-buying programs might have been premature. The Journal's Jon Hilsenrath has more on what the jobs report means for the Fed.

More

• Don't Blame the Sequester -- Yet
• Bad News: Broad Jobless Rate Tumbles
• Five Takeaways From Today's Report
• Jobs Report: Winners and Losers

Private companies added 95,000 jobs, accounting for all of March's gains. Employment increased in professional and business services such as accounting, health care and construction. The construction industry has added 169,000 positions since September, a reflection of the stronger housing market. But manufacturers cut 3,000 jobs, and retailers slashed about 24,000 positions.

Consulting firm Challenger, Gray and Christmas said Thursday that the sequester hadn't yet led to significant government job cuts, though industries that rely on government contracts, such as aerospace and defense, have begun layoffs and self-imposed cost-cutting related to the federal squeeze.

On the retail front, stores may be anticipating a slowdown in consumer spending as more Americans notice that taxes have cut into paychecks.

Federal-government payrolls fell by 14,000 in March. The bulk of those cuts came at the U.S. Postal Service, which is financially troubled but isn't affected by the sequester. Local governments also trimmed payrolls, while states added positions.

Offsetting some of March's weakness, February payrolls were revised up to a gain of 268,000 from the originally reported 236,000, while January was revised to a gain of 148,000 from the previously reported 119,000.

"The U.S. is still unable to sustain what used to be just average rates of growth," said Paul Ashworth, chief U.S. economist at Capital Economics.

A Historical View

U.S. unemployment since 1948

View Graphics

The unemployment rate fell to its lowest level since December 2008, but mainly because about 496,000 people dropped out of the work force. Some 11.7 million workers who wanted a job couldn't find one last month.

The latest report likely means that the Federal Reserve will hold steady on its stimulus programs for now. The Fed expects the jobless rate to decline only gradually, and most officials there want to hold interest rates near zero until unemployment falls to 6.5%. Fed policy makers have signaled they will continue the central bank's stimulus programs, which include $85 billion a month in bond purchases, until they see a "substantial" improvement in the labor market.

Friday's report also said average earnings rose one cent to $23.82 an hour, while the average workweek increased 0.1 hour to 34.6 hours.

Write to Jeffrey Sparshott at jeffrey.sparshott@dowjones.com and Josh Mitchell atjoshua.mitchell@dowjones.com