Job growth slows

Friday’s disappointing jobs report contributed to a broad sell-off on Wall Street Friday and did little to change the view that the Federal Reserve will keep raising short-term interest rates slowly and steadily.

The economy added only 110,000 jobs in March, the Commerce Department said, the weakest performance in eight months and far short of the 220,000 predicted by the so-called consensus forecast. In fact the figure was lower than virtually any mainstream economist had predicted.

“This is an entirely disappointing report, especially in the context of a business cycle expansion that is well into year No. 4,” said David Rosenberg, chief North American economist for Merrill Lynch.

But while job growth disappointed — again — the report contained enough positive elements to bolster the view that the economy is still expanding rapidly enough to justified the Fed’s continued vigilance against inflation, especially when coupled with other recent data.

The unemployment rate, measured separately from the survey used to calculate payroll growth, dropped back to 5.2 percent by 5.4 percent, matching its lowest level in more than three years. And average hourly wages rose 0.3 percent to $15.95, slightly higher than expected.

Stock prices initially held steady when the market opened after the employment report, but a sell-off gained momentum after a snapshot of the economy’s performance in March was released by the Institute of Supply Management, a respected business group. The Dow Jones industrial average was down almost 100 points, or 1 percent, at the closing bell.

The ISM’s manufacturing survey indicated slight but steady growth for the factory sector, but the manufacturing price index shot up to its highest level since November, probably a reflection of this year’s sharp increases in prices for crude oil and other commodities, said Lynn Reaser, chief economist for Banc of America Capital Management.

“So the inflation watch by no means has been cancelled,” she said.

The ISM’s monthly report on the non-manufacturing sector also was mistakenly released and showed service industries unexpectedly picking up speed.

For nervous investors, the reports added up to an unfriendly set of signals about the potential for more inflation, said Ethan Harris, chief U.S. economist for Lehman Bros.

Ever since the Federal Reserve warned last week that inflation pressures have “picked up in recent months,” investors have become hypersensitive to signs of faster price growth and the prospect that the central bank would have to respond by raising rates more aggressively.

“That has become the new bogeyman in the market,” Harris said. He said the latest signs of slower growth and slightly faster inflation were not a serious cause for concern but gave stockholders an excuse to sell.

MORE FROM EYE ON THE ECONOMY

Eye on the Economy Section Front

NYT: U.S. forecasts smaller loss from bank bailout Battle lines forming over TARP extension Obama talks of jobs plan in weekly address Productivity rises by largest amount in 6 years Bleak job scene poses challenge for Obama 'Problem' banks at highest level in 16 years RV industry no longer running on empty Long-term unemployed face dwindling options  Obama warns of 'double-dip recession' One in four metro areas in recovery mode Eye on the Economy Section Front   Add Eye on the Economy headlines to your news reader: