American employers pulled back sharply on hiring last month as job creation slowed from recent highs and failed to meet economists' expectations.
The U.S. Labour Department says the economy added just 120,000 jobs in March, far fewer than the 200,000 that were expected and the fewest in five months.
While the unemployment rate dipped 0.1 percentage points to 8.2 per cent, that was mostly due to Americans that stopped looking for work.
However, that is still the lowest unemployment rate since January 2009 as the official unemployment tally only includes those seeking work.
U.S. President Barack Obama emphasized that while the economy is still improving, the pace of growth may be frustrating to some.
"It's clear to every American that there will still be ups and downs along the way and that we've got a lot more work to do," Obama said during remarks at a White House.
The U.S. economy has added 858,000 jobs since December — the best four months of hiring in two years.
The mixed report was a disappointment after three months of solid job growth. Job creation had averaged 245,000 in each of the past three months ending in February.
Stock markets are closed and bond markets will close early for Good Friday, so most investors won't get to render a verdict on the report until Monday.
The slowdown in job creation could also threaten a recent rise in consumer confidence and dent investors' enthusiasm for stocks. It may even prove to be a setback for President Barack Obama's re-election hopes.
But economists noted that it's just one month after three solid gains.
"We are disappointed," said Anthony Chan, chief economist at JPMorgan Wealth Management. "But when you go inside and lift the hood, the numbers look a little better."
Manufacturing grows, retail slows
One silver lining in the report is the manufacturing sector. It continued to add jobs as 37,000 workers were hired in March. That follows on the better than expected reading of Canadian manufacturing jobs released yesterday.
Retailers shed nearly 34,000 jobs in March, and temporary help firms dropped almost 8,000 — a potentially bad sign for the job market because companies often hire temp workers before adding full timers.
A broader measure of weakness in the labour market — which adds to the officially unemployed those who have given up looking for work and those forced to settle for part-time jobs — improved last month to 14.5 percent from 14.9 percent in February.
The Bureau of Labour Statistics said the economy added 4,000 more jobs in January and February than it previously reported.
Other data suggest the economic recovery is gaining strength. The number of Americans seeking unemployment benefits fell last week to a four-year low, the government said Thursday. Consumers are more confident and spending more.
The service sector expanded at a healthy clip in March and increased hiring, according to a private survey released Wednesday by the Institute for Supply Management. Factories are busier. Companies are investing more, ordering more machinery and other equipment.
Economists have worried all along that job growth couldn't sustain the strong December-to-February pace.
They also worry that a 66-cent run-up in gasoline prices so far this year will discourage consumer spending — though American households are more resilient financially after cutting their debts.
Most economists expect annual economic growth this year of just 2.5 per cent. Normally, it takes annual growth of 4 percent to lower the unemployment rate 1 percentage point over a year.
The job market is improving largely because the pace of layoffs has fallen sharply. The staffing firm Challenger, Gray & Christmas reported Thursday that planned layoffs fell 27 percent from February to March. Hiring, meanwhile, is still running nearly 20 percent below pre-recession levels.
With files from The Associated Press