By Sarah Chaney Cambon and Gwynn Guilford 

Hiring unexpectedly slowed in April, a sign the recovery faces temporary setbacks as many businesses struggle to find workers or remain cautious about the economic outlook.

U.S. employers added a modest 266,000 jobs in April, far short of the one million economists had forecast and the weakest monthly gain since January, Friday's Labor Department report showed. The deceleration came after payrolls rose a downwardly revised 770,000 in March.

The unemployment rate ticked up to 6.1% in April from 6% a month earlier, partially reflecting an increase in people entering the workforce.

Higher vaccination rates, fiscal stimulus and easing business restrictions are converging to support stronger spending across the U.S. The economy emerging from pandemic-related disruptions is also encountering restraints on job gains and broader economic activity, as imbalances in supply and demand for goods, services and labor play out in the coming months.

Some businesses are cautious about ramping up hiring, given the pandemic and related uncertainty continues. Others are reporting they can't find enough workers due to expanded unemployment benefits, workers' fear of contracting Covid-19 and child-care burdens due to school closures, economists say.

"It's just taking longer than expected to match people to jobs," said Aneta Markowska, chief economist at Jefferies LLC. "But it's not a question of if, it's a question of when, these jobs do come back."

Payrolls declined across several industries last month, particularly those that had benefited from demand earlier in the pandemic. Temporary-help employment fell by 111,000, manufacturing employment was down 18,000 -- predominantly in motor vehicles where semiconductor-chip shortages idled some factories. Retail jobs fell by 15,000, despite robust consumer spending this spring.

Signs of labor-market tightness also emerged in Friday's report, aligning with many companies' complaints that they can't find workers to meet demand.

Wages for workers rose in April as some employers appeared to lift pay to attract or retain employees. Average hourly earnings for private-sector employees rose by 21 cents to $30.17 in April. The gain is notable because strong hiring in the lower-wage hospitality sector -- which occurred in April -- would typically put downward pressure on average earnings.

The average workweek increased to 35 hours in April, an indication some employers added worker hours to compensate for the lack of labor.

Mercury Marine, a boat-engine manufacturer based in Fond du Lac, Wis., is ramping up overtime hours so it can make enough engines as it tries to find more workers.

The company plans to add 250 manufacturing employees to its main campus this year. But Fond du Lac's unemployment rate of about 4% is well below the national average, meaning there are relatively few people in the area available to work, said Chris Drees, the manufacturing company's president.

"If we can't get those employees, it will certainly hinder our ability to produce," Mr. Drees said.

The labor-force participation rate, or share of people working or seeking work, logged in at 61.7% in April, the highest rate since August. Rising labor force participation should help companies fill jobs in the coming months, though it will take time for some people, like mothers, to return from the sidelines.

Participation among women aged 25 to 54 fell to 75.1% in April from 75.2% a month earlier, while participation among prime-age men rose to 87.8% from 87.6% in March.

Under relief bills passed by Congress, those receiving jobless benefits get an additional $300 a week on top of regular state benefits, which average $318 a week, according to the Labor Department. That means the average unemployment recipient earns better than the equivalent of working full time at $15 an hour. Those enhanced benefits are available until September, for a maximum of nearly 18 months -- about three times longer than most states typically allow.

Some employers and economists say enhanced unemployment benefits in the latest pandemic-aid package is one factor affecting job growth. The U.S. Chamber of Commerce on Friday asked policy makers to end the additional benefits.

"The disappointing jobs report makes it clear that paying people not to work is dampening what should be a stronger jobs market," said Neil Bradley, Chamber executive vice president and chief policy officer.

Democrats, who control Congress and the White House, say the enhanced payments are needed while the economy continues to recover.

"We're seeing that the economy is definitely recovering, but there are still millions of people in economic pain," Labor Secretary Marty Walsh said. "I don't feel that unemployment insurance is discouraging people from looking for work," he added, citing other factors such as the need to get more people vaccinated and limited child-care options.

A U.S. Census survey conducted in the second half of April found that about 6.8 million people hadn't worked in the past seven days because they were caring for children not in school or daycare -- in line with the average number reporting such conflicts since June 2020.

Nearly six million cited not wanting to be employed at this time, the highest number since the survey began last June. Another 4.2 million weren't working because they were worried about getting or spreading the virus on the job, the same as in late March, but down from more than five million in the winter months.

Federal Reserve Chairman Jerome Powell recently said that while the labor market and overall economy have improved recently the central bank wants to see further progress before reducing its support during the recovery. "It's not time yet," Mr. Powell said after the Fed's April rate policy meeting.

The leisure and hospitality sector, including restaurants, accounted for the bulk of employment creation in April, adding 331,000 jobs. The Labor Department said that reflected an easing of pandemic-related restrictions in many parts of the country.

Paul Keeler, owner of two barbecue restaurants and a steakhouse in Arizona, said sales across the three restaurants surged by 17% at the start of this year compared with the beginning of 2019, when he said business was hot.

"The pent-up demand has been tremendous," Mr. Keeler said. "Because we've been so busy, we've been interviewing and hiring every week."

Regions that suffered more from the pandemic and imposed greater restrictions are showing signs of faster rebounds. For example, Homebase data indicated that small-business employment in Florida has held relatively steady since October 2020, compared with steep climbs in New York and California since January. The number of workers clocking in at New Mexico small businesses is now up nearly 3% from levels seen last autumn.

Heritage Hotels & Resorts has seen a pickup in customer bookings in the past month as New Mexico eases restrictions, said Molly Ryckman, the company's vice president of sales and marketing. Earlier this week, New Mexico officials lifted hotel occupancy restrictions in counties where Heritage operates several boutique hotels. Restrictions were relaxed in the other counties in which it operates a few weeks ago.

Heritage has added hundreds of workers in the last couple of months, though staffing is still less than half of pre-pandemic levels. The company currently has 150 open jobs but is struggling to quickly fill the positions. As a result, it is increasingly looking at candidates without previous hospitality experience, Ms. Ryckman said.

"Especially in a destination like Santa Fe, when you shut down every museum and every restaurant and all of those are reopening at the same time, it makes it a challenge to fully staff and reopen," she said.

Eric Morath contributed to this article.

Write to Sarah Chaney Cambon at sarah.chaney@wsj.com and Gwynn Guilford at gwynn.guilford@wsj.com

(END) Dow Jones Newswires

May 07, 2021 13:21 ET (17:21 GMT)

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