US job growth slowed sharply in March amid continued layoffs in the embattled retail sector, but a drop in the unemployment rate to a near 10-year low of 4.5 percent suggested labor market strength remained intact.
Nonfarm payrolls increased by 98,000 jobs last month, the fewest since last May, the Labor Department said on Friday.
Job gains, which had exceeded 200,000 in January and February, were also held back by a slowdown in hiring at construction sites, factories and leisure and hospitality businesses, which had been boosted by unseasonably warm temperatures earlier in the year.
In March, temperatures dropped and a storm lashed the Northeast and Midwest. Economists said bad weather accounted for the stepdown in hiring. The two-tenths of a percentage point drop in the unemployment rate from 4.7 percent in February took it to its lowest level since May 2007.
"The disappointing gain in nonfarm payrolls in March is a bit of a head fake that doesn't reflect the underlying strength and momentum in the labor market," said Scott Anderson, chief economist at Bank of the West in San Francisco.
While the bigger establishment survey showed fewer jobs created last month, the smaller and __more volatile survey of households showed employment increased 472,000.
The economy needs to create 75,000 to 100,000 jobs per month to keep up with growth in the working-age population and some Federal Reserve officials view the labor market as being at full employment. Economists had forecast payrolls increasing 180,000 last month and the unemployment rate unchanged at 4.7 percent.
The dollar rose a three-week high against a basket of currencies while prices for US Treasuries fell. Stocks on Wall Street rose. Job growth averaged 178,000 per month in the first quarter, underscoring the labor market's strength, despite last month's stumble.
The solid employment gains suggest that an apparent slowdown in gross domestic product growth to around a 1.0 percent annualized pace in the first quarter is probably temporary. The economy grew at a 2.1 percent rate in the fourth quarter.
Average hourly earnings increased 5 cents or 0.2 percent in March after rising 0.3 percent in February. That lowered the year-on-year gain in wages to 2.7 percent.
But with inflation rising and the unemployment rate below the most recent Fed median forecast for full employment, economists expect another interest rate increase in June.
The US central bank lifted its overnight interest rate by a quarter of a percentage point in March and has forecast two __more increases this year. Minutes from the Fed's mid-March meeting showed most policymakers expected to start reducing the Fed's $4.5 trillion bond portfolio later this year. New York Fed President William Dudley said on Friday that would prompt only a "little pause" in the central bank's rate hike plans.
"If today's decline in the unemployment rate doesn't reverse itself they may be compelled not only to hike but also to signal a faster pace of future tightening," said Michael Feroli, an economist at JPMorgan in New York.
Other measures also showed labor market slack shrinking. The labor force participation rate, or the share of working-age Americans who are employed or at least looking for a job, held at an 11-month high of 63 percent in March.