US jobless rate hits 7-year high in April

The US unemployment rate climbed to its highest level in seven-and-a-half years last month – triggering warnings that the economy was still some way short of achieving sustained growth.

The US unemployment rate climbed to its highest level in seven-and-a-half years last month – triggering warnings that the economy was still some way short of achieving sustained growth. The figures, released yesterday, also reinforce a view that interest rates are unlikely to be raised for several months.

The Department of Labor said the unemployment rate rose from 5.7 per cent in March to 6 per cent last month, a figure unmatched since August 1994.

The figures disappointed the market and initially sent the Dow Jones Industrial Average tumbling 148 points. But the US benchmark index later regained the 10,000 mark, ending 85 points lower at 10,007.

Analysts said while expansion in gross domestic product – the broadest measure of economic activity – moved ahead during the first quarter, there have been indications that factory orders were growing only slowly.

"The higher-than-expected unemployment rate does confirm the fact that we've got a sort of stalling going on in the recovery and is also consistent with the fact that labour always lags in a recovery as well," said Sharon Stark, a senior strategist at Legg Mason in Baltimore. "Clearly, I think even August might be a stretch now for a rate hike."

John Puchalla, a senior economist at Moody's Investors Service, said: "These numbers suggest corporate profits remain weak enough to cause concern over the labour market. As time moves on a firming of sales and earnings should provide a bigger boost to employment, but for now it's fairly weak."

Wall Street economists had forecast that 41,000 jobs would be created in April and that the unemployment rate would edge up to 5.8 per cent. But revised government figures show jobs were lost in each of the first three months this year – 109,000 in January, 4,000 in February and 21,000 in March – in a suggestion that a pick-up in the labour market may lag other improving economic sectors for some time.

The Federal Reserve's policy making body, the Federal Open Market Committee, is expected to take the job market into consideration when it meets to consider interest rate strategy next Tuesday. It is likely to decide to keep rates steady at current 40-year lows until there are firmer indications of a sustained econo- mic recovery.

"The Fed should do nothing. I don't think there is any impetus for the Federal Reserve to raise rates now," said Robert Macintosh, an economist at Eaton Vance Management Inc in Boston. "The economy right now is just barely moving forward, and that's not an environment for the Fed to raise rates. I don't expect rates to rise this year."