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Report: Jobs Weakness May Reflect Tax Hikes

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April 5, 2013 by   Leave a Comment

American employers hired at the weakest pace in nine months in March, a sign that tax hikes that kicked in early this year as part of Washington’s austerity drive could be stealing momentum from the economy.

Reuters reported that the economy added just 88,000 nonfarm jobs last month, the Labor Department said on Friday.

That was well below market expectations for a 200,000 increase and lower than even the most pessimistic forecast in a Reuters poll. The jobless rate ticked a tenth of a point lower to 7.6% largely due to people dropping out of the work force.

“The U.S. economy just hit a major speed bump,” said Marcus Bullus, trading director at MB Capital in London.

Some of the weakness appeared due to tax hikes enacted in January. While prior reports have pointed to relatively buoyant retail sales in January and February, Friday’s data showed retailers actually cut staff in March by 24,100, making it the hardest-hit sector last month.

Moreover, the government said hiring in the retail sector was weaker in January and February than initially thought.

The report rattled investors, sending U.S. stocks lower and putting them on pace for their poorest weekly performance this year. Benchmark Treasury debt yields fell to their lowest this year and the dollar declined against a basket of currencies.

It was unclear whether across-the-board federal budget cuts that began in March played a role in the weak pace of hiring, although nervousness over the cuts might have made businesses shy about taking on more staff.

Some economists cautioned against reading too much into the report, though the data nonetheless raised questions over whether the strong hiring seen in the winter actually meant the economy had shifted into a higher gear.

“We don’t think there is enough signal here to conclude the U.S. economy is wobbling. Rather, it appears that the underlying trend has not improved as much as the January-February data suggested,” said Julia Coronado, chief North America economist at BNP Paribas in New York.

March’s slowdown in job growth could make policymakers at the Federal Reserve more confident about continuing a bond-buying stimulus program. Prior advances in the labor market recovery had fueled discussion at the central bank over whether to dial back the purchases, perhaps as soon as this summer.

“This could give them the green light to stay with this policy longer,” said Brian Rehling, chief fixed income strategist at Wells Fargo Advisors in St. Louis.

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