Unemployment fell to 2-year low after hiring surge

[May 10, 2011]  WASHINGTON (AP) -- The nation's unemployment rate dropped to its lowest level in two years in March, and the outlook is brightening as major companies plan to add more jobs.

Increased hiring cut the unemployment rate to 8.8 percent -- an encouraging sign for the unemployed and for President Barack Obama's re-election prospects.

Still, the job gains haven't led many people who stopped looking for work during the recession to start again. Fewer than two-thirds of American adults are either working or looking for work -- the lowest participation rate in 25 years.

The economy added 216,000 jobs last month, the government said Friday. Factories, retailers, the education and health care sectors, and professional and financial services all expanded payrolls. Those gains offset layoffs by local governments, construction and telecommunications.

The improved outlook propelled the Dow Jones industrial average to a 2011 high in early trading. Stocks then pared their gains as oil prices climbed to 30-month highs. The Dow closed up about 57 points, or 0.46 percent.

The private sector added more than 200,000 jobs for a second straight month. It was the first time that's happened since 2006 -- more than a year before the recession started.

And it could mark a turning point in job creation. America's largest companies plan to step up hiring in the next six months, a March survey of CEOs found. Google, Siemens Corp. and Ford Motor Co., among others, have said they plan to add workers.

Economists expect the stronger hiring to endure throughout the year, producing a net gain of about 2.5 million jobs for 2011. Even so, that would make up for only a small portion of the 7.5 million jobs wiped out during the recession. The economy must average up to 300,000 new jobs a month to significantly lower unemployment.

The unemployment rate has fallen a full percentage point since November, the sharpest four-month drop since 1983. Stepped-up hiring is the main reason. But a more sobering factor is that the number of people who are either working or seeking a job remains surprisingly low for this stage of the recovery.

People without jobs who aren't looking for one aren't counted as unemployed. Once they start looking again, they're classified as unemployed, and the unemployment rate can go back up. That can happen even if the economy is adding jobs.

Just 64.2 percent of adults have a job or are looking for one -- the lowest participation rate since 1984. The number has been shrinking for four years. It suggests many people remain discouraged about their job prospects even as hiring is picking up.

A falling unemployment rate is vital for Obama, who is 19 months from a re-election vote and facing a lineup of potential Republican challengers who will make his stewardship of the economy the dominant issue.

President Ronald Reagan had low job-approval ratings in his first term, when unemployment surged to 10.4 percent. By Election Day 1984, the unemployment rate had sunk to 7.2 percent. Reagan won a landslide victory.

"Although we got good news today, we have to keep the momentum going," Obama told workers at a UPS shipping facility in suburban Maryland. "There are still millions of Americans out there that are looking for a job that pays the bills."

Just 15 percent of Americans surveyed in mid-March said the economy had improved in the past month, according to an Associated Press-GfK poll. That's a sharp decline from January, when 30 percent said so. And 28 percent said the economy would worsen. It's the largest percentage to say so since the question was first asked in December 2009.

"It's good for Obama that unemployment is falling," said Terry Madonna, a political scientist at Franklin & Marshall College in Pennsylvania. "But ultimately, what voters care about is whether this recovery is helping them. Can the kids go to college? Can I pay the mortgage? Can I take a vacation?"

Even those who are working have less spending power than they did a year ago. Wages were flat in March. And over the past 12 months, they've trailed inflation. Workers have scant bargaining power to demand raises because the job market is still healing only slowly.

Job growth is getting no help from local governments, which cut 15,000 workers last month while wrestling with budget shortfalls. They are expected to keep shedding jobs.

Also, housing remain depressed in many cities, weighed down by falling prices and rising foreclosures. Construction spending dropped in February to a 12-year low.

Higher food and gas prices are also leaving consumers with less income to spend on other goods and services.

Including part-time workers who would prefer full-time work, plus people who have given up looking altogether, roughly 24 million people were "underemployed" in March. That's 15.7 percent of the work force.

But the Business Roundtable, representing CEOs of large companies, found in a survey released this week that 52 percent of its members plan to increase hiring within six months. That's the largest proportion for the group since it began polling its members nine years ago.

Siemens Corp., which makes industrial equipment, is ramping up production of gas turbines because of an expected increase in demand from U.S. utilities.

The company has hired 200 workers in Charlotte, N.C. The expansion will create 1,000 jobs by the end of next year, doubling head-count at the plant.

Mark Pringle, director of operations at the plant, said it advertises about 50 openings at a time and receives 2,000 to 3,000 applications each time. The new jobs are in addition to about 2,800 job openings that Siemens is seeking to fill across the country.

Lease-to-own retailer Aaron's Inc. says it plans to add nearly 1,000 jobs in the United States and Canada this year and open about 150 new stores. The company sells residential furniture, consumer electronics and appliances.

Aaron's caters to consumers who lack the cash or credit to buy a new TV or bedroom set outright. Shoppers make monthly payments after the company checks personal references.

CEO Robin Loudermilk said that during the recession the company saw formerly high-income consumers who had lost credit after layoffs or pay cuts. Now, he said, more customers are moving into homes after getting a new job or shifting from part-time to full-time work.

"We are definitely seeing an uptick in traffic," he said. "We're starting to see the employment picture get better."

Google is hiring at least 6,200 workers this year, a 25 percent boost that will leave the Internet search leader with more than 30,000 by the end of 2011. General Motors says it will recall the last 2,000 of its laid-off production workers by fall, clearing the way for new hires as auto sales continue to rebound.

The strengthening jobs picture could lead the Federal Reserve to start boosting interest rates sooner to fend off inflation. But for now, most economists are sticking with their forecast for the first rate increase to come in about 12 months.

"The unemployment rate has broken through the sound barrier and continuing to decline," said Sung Won Sohn, economist at California State University. "The recovery in employment is here to stay."

[Associated Press; By JEANNINE AVERSA]

Associated Press writers Liz Sidoti and Christopher S. Rugaber contributed to this report.

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