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Unemployment rises to 7.6 percent amid government layoffs

The nation's unemployment rate ticked up to 7.6 percent from 7.5 percent last month as the federal government laid off another 14,000 workers and nearly a half million people surged into the market looking for work, the Labor Department reported Friday morning.

The rise in unemployment reflected the loss of 45,000 federal jobs in the last three months — the result of $85 billion in across-the-board cuts in the bureaucracy — and came despite solid growth in employment in the private sector, which brought total job gains to 175,000 during the month. That is close to the average of 172,000 jobs created each month in the last year.

Private jobs more than offset the government job losses and were especially plentiful at retailers and restaurants, reflecting a revival of consumer spending this year, as well as in professions such as computers, architecture and temporary business services.

"This is positive news for the U.S. economy, especially as government jobs were cut during the month," said Chris Williamson, chief economist at Markit.

Nariman Behravesh, chief economist at IHS Global Insight, said growth in the private economy has been picking up momentum, but that is being masked by the deep government budget cuts, which are shaving about a percentage point off off the reported growth rate.

"The underlying growth rate in the economy is stronger than the headline numbers suggest," he said. "As the impact from this fiscal tightening dissipates, growth will rebound -- likely by late this year or early next year."

Consumers have sensed the rising momentum recently, sending consumer confidence to its highest levels since 2007, and prompting healthy growth in spending on cars, houses and other things.

The underlying pick-up in the economy is likely what attracted 420,000 new entrants into the labor force last month, economists said, which ironically pushed up the unemployment rate because about one in four of them was unable to find a job.

The jump in people seeking work represents a reversal of the trend in recent years of people dropping out of the labor force because they were unable to find work.

"The pick-up in the participation rate is a step in the right direction," said Harm Bandholz, economist at Unicredit Research. "The U.S. economy is about to regain momentum and will expand at an annualized 2.75 percent in the second half of the year. We expect the labor market will continue to improve gradually."

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