US payrolls gain in April smallest in seven months

WASHINGTON (REUTERS) - The United States economy added the fewest number of jobs in seven months in April and Americans dropped out of the labor force in droves, signs of weakness that cast doubts on whether the Federal Reserve will raise interest rates before the end of the year.

Nonfarm payrolls increased by 160,000 jobs last month as construction employment barely rose and the retail sector shed jobs, the Labor Department said on Friday.

That was the smallest gain since September and below the first-quarter average job growth of 200,000.

Employers added 19,000 fewer jobs in February and March than previously reported. While the unemployment rate held at 5.0 per cent that was because people dropped out of the labour force.

Economists polled by Reuters had forecast payrolls rising 202,000 last month and the jobless rate unchanged at 5 per cent.

The stepdown in job growth could raise concerns that the weakness in overall economic activity was spilling over to the labour market. Economic growth slowed sharply in the first quarter this year.

Average hourly earnings were a bright spot in the employment report, rising eight cents or 0.3 per cent last month. That took the year-on-year increase to 2.5 per cent from 2.3 per cent in March, still below the 3.0 per cent advance that economists say is needed for inflation to rise to the Fed's 2.0 per cent target.

The US central bank last month offered a fairly upbeat assessment of the labour market, saying that conditions had "improved further". The Fed raised its benchmark overnight interest rate in December for the first time in nearly a decade. Fed officials have forecast two more rate hikes for this year.

Market-based measures of Fed policy expectations have virtually priced out an interest rate increase at the Fed's June 14-15 meeting, according to CME Group's FedWatch. They see a less than 50 per cent probability of rate hikes in September and November, with a 59 per cent chance at the December meeting.