US Job Creation Plunges, but Rate Drops to 7.6%

An unemployed worker checks out a brochure at a jobs fair.
Andrew Harrer | Bloomberg | Getty Images
An unemployed worker checks out a brochure at a jobs fair.

Job creation slowed to a crawl during March, with the U.S. economy creating just 88,000 positions though the unemployment rate fell to 7.6 percent.

The number was a sharp slide from February's upwardly revised 268,000.

The Labor Department reported Friday that nonfarm payroll growth eased amid hopes that the economy had begun to achieve the escape velocity needed for sustained growth.

Friday's report fell short of economist expectations of 200,000 new jobs, confirming some of the weakness in recent reports.

Moreover, the drop in the jobless rate was little more than a statistical anomaly, with the labor-force participation rate tumbling to a 34-year low of 63.3 percent. However, a broader measure of unemployment that counts the discouraged and underemployed also fell, declining to 13.8 percent from February's 14.3 percent.

The actual level of employment dropped by 206,000 and the number of Americans considered still in the labor force tumbled by 496,000.

"Having such a disappointing figure in March will have a volcanic negative impact on sentiment in critical economic areas, such as housing," said Todd Schoenberger, managing partner at LandColt Capital. "Wall Street will not be happy, and are certain to punish stocks today."

Markets reacted negatively to the report, with the stock market off about 1 percent across the board in early trading.

Wall Street had been waiting to see how the mandatory spending cuts in Washington, known as the sequester, would affect the economy, and may have gotten at least a preview with the latest jobs data.

"Once again we see a disappointing seasonal slowdown unfold as we head into spring," said Kathy Bostjancic, director of macroeconomic analysis at the Conference Board. "What is even more troubling about the most recent slowdown is that it takes place even before the sequester cuts materially hit the economy.

With speculation rising that the Federal Reserve soon would start winding down its asset purchase program, the weak jobs report probably keeps the central bank on hold at least through the end of the year.

The central bank has tied the end of its zero interest rate policy to a drop in the unemployment rate to 6.5 percent, but Friday's number showed that a falling level is not always a good economic omen.

"The Fed certainly understands that this is not a sign of an improving labor market," said Kate Warne, investment strategist at Edward Jones. "If anything this is friendly toward the notion that the Fed will continue to buy bonds for longer than we expected."

Services and health care accounted for most of the new jobs, with 51,000 and 23,000 new positions respectively.

On the minus side, retail lost 24,000 jobs and the U.S. Postal Service cut its workforce by 12,000.

Previous months' counts did see solid upwards revisions, so March's may not be quite as gloomy as initially indicated. In addition to February's number getting taken up from the initially reported 236,000, the January tally rose from 119,000 to 148,000.

Long-term unemployment remained a problem, with the average duration of unemployment hitting a 2013 high of 37.1 weeks.

The closely watched average earnings level was little changed at $23.82 an hour, while the average work week edged higher to 24.1

-By's Jeff Cox. Follow him on Twitter @JeffCoxCNBCcom.