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Why U.S. job market has not plunged

April saw only 20,000 jobs lost, and unemployment improved to 5 percent.

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This time around, Mr. Achuthan says, many employers restrained their hiring back in 2006 and 2007, as the fading boom in housing was becoming a focus of business news. Therefore, he says, "there's less cutting to be done."

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This may help explain why the economy lost a smaller-than-expected 20,000 jobs in April, according to Labor Department numbers released on Friday.

That was an improvement from the roughly 80,000-per-month pace of job losses in the year's first three months, as tallied in a survey of US employers.

Unemployment, measured in a separate Labor Department survey, fell to 5 percent from 5.1 percent in March.

Still, economists say the job market is weakening, not recovering. Friday's numbers confirmed that on several fronts.

It was the fourth consecutive monthly decline in jobs. Although 20,000 jobs aren't much in an economy of 138 million jobs, the economy needs to add jobs to keep up with a growing labor force.

Wage growth has decelerated and has not kept pace with inflation. April saw a big jump in the number of people who have part-time jobs but want full-time work. The hours in a typical workweek fell slightly. And in April, just 45 percent of industries were adding jobs, down from 55 percent last fall.

Moreover, when the economy is slowing, job numbers are often revised downward in the months after their release.

The question is how well employers will be able to maintain their payrolls. That will depend on consumer spending, hinging heavily on energy and housing. During the boom years for real estate, many borrowed against their rising home equity – and the resulting spending helped fuel the economy. But now home prices are falling at double-digit annual rates.

"It's hard to believe that consumers will continue to spend as readily as they did in the past," Rodriguez says.

Many households will decide to save more of their income, now that home prices aren't doing their saving for them.

Rising gasoline and food costs are also forcing consumers to cut back.

All this doesn't mean consumer spending will be severely curtailed. But these head winds could last a while. Economists at Goldman Sachs forecast that consumer spending will rise just 1.4 percent this year, and 0.6 percent in 2009, versus a 2.9 percent rise last year.

Federal policies may moderately assist.

Taxpayer rebate checks are starting to arrive in the mail, President Bush noted in an address on the economy last week.

"We wanted to make sure that people were encouraged to be consumers," he said. "No better way to stimulate consumption than to let you have some of your own money back." And the Federal Reserve has adjusted monetary policy toward stimulus as well.

The central bank's programs to provide loans on Wall Street, during a period of financial stress, may be bearing fruit. A monthly poll of CEO confidence by Chief Executive magazine posted a rise in April after two months of declines.

"A lot of liquidity has been put into the system," Achuthan says. "It will eventually contribute to a recovery."