Google Buys a Quantum Computer

By QUENTIN HARDY

MAY 16, 2013, 5:00 AM

Google and a corporation associated with NASA are forming a laboratory to study artificial intelligence by means of computers that use the unusual properties of quantum physics. Their quantum computer, which performs complex calculations thousands of times faster than existing supercomputers, is expected to be in active use in the third quarter of this year.

The Quantum Artificial Intelligence Lab, as the entity is called, will focus on machine learning, which is the way computers take note of patterns of information to improve their outputs. Personalized Internet search and predictions of traffic congestion based on GPS data are examples of machine learning. The field is particularly important for things like facial or voice recognition, biological behavior, or the management of very large and complex systems.

“If we want to create effective environmental policies, we need better models of what’s happening to our climate,” Google said in a blog post announcing the partnership. “Classical computers aren’t well suited to these types of creative problems.”

Google said it had already devised machine-learning algorithms that work inside the quantum computer, which is made by D-Wave Systems of Burnaby, British Columbia. One could quickly recognize information, saving power on mobile devices, while another was successful at sorting out bad or mislabeled data. The most effective methods for using quantum computation, Google said, involved combining the advanced machines with its clouds of traditional computers.

Google bought the machine in cooperation with the Universities Space Research Association, a nonprofit research corporation that works with NASA and others to advance space science and technology. Outside researchers will be invited to the lab as well.

This year D-Wave sold its first commercial quantum computer to Lockheed Martin. Lockheed officials said the computer would be used for the test and measurement of things like jet aircraft designs, or the reliability of satellite systems.

The D-Wave computer works by framing complex problems in terms of optimal outcomes. The classic example of this type of problem is figuring out the most efficient way a traveling salesman can visit 10 customers, but real-world problems now include hundreds of such variables and contingencies. D-Wave’s machine frames the problem in terms of energy states, and uses quantum physics to rapidly determine an outcome that satisfies the variables with the least use of energy.

In tests last September, an independent researcher found that for some types of problems the quantum computer was 3,600 times faster than traditional supercomputers. According to a D-Wave official, the machine performed even better in Google’s tests, which involved 500 variables with different constraints.

“The tougher, more complex ones had better performance,” said Colin Williams, D-Wave’s director of business development. “For most problems, it was 11,000 times faster, but in the more difficult 50 percent, it was 33,000 times faster. In the top 25 percent, it was 50,000 times faster.” Google declined to comment, aside from the blog post.

The machine Google will use at NASA’s Ames Research facility, located near Google headquarters, makes use of the interactions of 512 quantum bits, or qubits, to determine optimization. They plan to upgrade the machine to 2,048 qubits when this becomes available, probably within the next year or two. That machine could be exponentially more powerful.

Google did not say how it might deploy a quantum computer into its existing global network of computer-intensive data centers, which are among the world’s largest. D-Wave, however, intends eventually for its quantum machine to hook into cloud computing systems, doing the exceptionally hard problems that can then be finished off by regular servers.

Potential applications include finance, health care, and national security, said Vern Brownell, D-Wave’s chief executive. “The long-term vision is the quantum cloud, with a few high-end systems in the back end,” he said. “You could use it to train an algorithm that goes into a phone, or do lots of simulations for a financial institution.”

Mr. Brownell, who founded a computer server company, was also the chief technical officer at Goldman Sachs. Goldman is an investor in D-Wave, with Jeff Bezos, the founder of Amazon.com. Amazon Web Services is another global cloud, which rents data storage, computing, and applications to thousands of companies.

This month D-Wave established an American company, considered necessary for certain types of sales of national security technology to the United States government.


This post has been revised to reflect the following correction:

Correction: May 17, 2013

An earlier version of this story stated that NASA was involved in the purchase of the quantum computer. While the computer will be located at NASA’s facility, it was not involved in the purchase of the computer.

Dollar soars, stocks gain amid talk of Fed QE exit

By Herbert Lash

NEW YORK | Fri May 17, 2013 10:55am EDT

(Reuters) – Global equity markets rose and the dollar soared against a basket of currencies on Friday, reaching a nearly three-year peak, as speculation mounted over whether the Federal Reserve would soon begin to rein in its asset-buying program.

Wall Street opened higher, with the benchmark S&P 500 rebounding from its worst decline in nearly three weeks, following gains in European shares that were lifted by carmakers cheered on by signs of a revival in domestic sales.

Also lifting stocks was a survey that showed a rebound in U.S. consumer sentiment in early May to the highest level in nearly six years as Americans felt better about their financial and economic prospects, particularly among upper income households.

The dollar’s strength was largely attributed to the euro, which fell to a six-week low on market talk that the European Central Bank could introduce negative deposit rates, a move that would make banks pay to park their cash overnight with the ECB.

The dollar index .DXY, which measures its value against a basket of six major currencies, rose to 84.312, its highest in nearly three years. It last traded at 84.262, up 0.81 percent on the day.

The euro fell 0.55 percent to $1.2810, while the dollar hit a 4-1/2 year high versus the Japanese yen, up 0.55 percent at 102.80.

“People are positive about the U.S. economic recovery despite recent weak data and today’s theme is mostly about the broadly strong dollar,” said Charles St-Arnaud, FX strategist at Nomura Securities.

“Meanwhile, data in the euro zone shows they remain in a recession and raised expectations the ECB will take further action is weighing on the euro,” he said.

A measure of global equity activity, MSCI’s all-country world stock index .MIWD00000PUS, rose 0.05 percent.

The Dow Jones industrial average .DJI was up 66.70 points, or 0.44 percent, at 15,299.92. The Standard & Poor’s 500 Index .SPX was up 9.98 points, or 0.60 percent, at 1,660.45. The Nasdaq Composite Index .IXIC was up 19.64 points, or 0.57 percent, at 3,484.89.

European shares .FTEU3 bounced off session lows to rise 0.23 percent to 1,248.30.

Gold fell for a seventh straight session, its longest losing streak in four years, driven by speculation the Fed may soon ease its asset-purchase program to boost the economy.

Spot gold prices fell $16.49 to $1,369.20 an ounce.

Comments on Thursday from John Williams, president of the Federal Reserve Bank of San Francisco, that the Fed could begin easing up on stimulus this summer stirred speculation.

Prices for U.S. Treasuries added to losses after the Thomson Reuters/University of Michigan’s preliminary reading on the overall index on consumer sentiment rose to 83.7 in early May from 76.4 last month, topping economists’ expectations for 78.

It was the highest level since July 2007.

The benchmark 10-year U.S. Treasury note was down 11/32 in price to yield 1.9175 percent.

In Europe, German Bunds hit one-week highs, with traders citing talk the ECB was checking with some banks on whether they were ready for a potential cut in its deposit rate to below zero.

German Bund futures rose as much as 43 ticks on the day to 145.74, before paring gains to trade 9 ticks higher.

Oil climbed towards $105 a barrel, rebounding from an earlier decline and heading for a small weekly gain, although concern about the strength of demand growth limited the rise.

Brent crude rose 78 cents to $104.56 a barrel. U.S. crude future added 68 cents to $95.84.

(Additional reporting by David Brett in London, Reporting by Herbert Lash; Editing by Chizu Nomiyama)

China Comes to Silicon Valley at One Startup Accelerator

A year after launch, a startup program is helping U.S. companies reach China—and vice versa.

By Jessica Leber on May 14, 2013
When Jon Bonanno, chief commercial officer of the clean-tech startup Empower Micro Systems, got up to face a small, packed room in Santa Clara, California, last week, it wasn’t like the polished “demo days” run by the highest-profile Silicon Valley startup accelerators. There was no stage, not even a screen for the projector. The sound system buzzed with painful feedback. The 100 or so guests stood or sat in folding chairs under bright fluorescent lights in a space adjoining a large startup workplace that contained a distinct no-no of Silicon Valley office culture: cubicles.

“This is demo day, Chinese style,” Bonanno had joked earlier.

The presentations marked the first anniversary of InnoSpring, an incubator backed mainly by Chinese investors that bills itself as the first to focus on opportunities for startups in both the United States and China. Whatever the scene lacked in frills, it more than made up for in the real opportunities provided to the companies presenting. What was notable for Bonanno, a Silicon Valley veteran, was that some of the top clean-tech investing firms with offices in both the U.S. and China were in the room.

InnoSpring, which in the last year has grown to house 40 companies in its 13,500-square-foot space and invest a total of $2 million in 12 of them, has come along at a compelling time for the startup marketplace in both nations. In China, a growing number of investors and large companies are looking to fund, acquire, and partner with U.S. startups—especially in sectors such as clean tech, where U.S. companies have struggled recently to raise funds and commercialize their products. And in the U.S., more startups are plotting to enter the massive Chinese market at earlier stages in their own maturity.

“We received 300 applications this year,” says Eugene Zhang, the Chinese-born Silicon Valley entrepreneur and angel investor who runs the program. In addition to clean tech, he has seen a lot of interest in startups pursuing cloud computing, big data, and opportunities in the growth of the mobile Internet. “Our primary focus is to build this ecosystem,” he says.

Empower is a good example of InnoSpring’s focus. The company makes a cheaper, more efficient design for microinverters, a technology that converts DC electricity produced by solar panels into AC electricity that can be used on the grid. It developed its prototypes right in the office—and, taking to heart the InnoSpring ethos of frugality, it has spent only $800,000 so far.

Bonanno says the designs could lower the cost of installing and producing solar power and provide a powerful new competitive opportunity to solar manufacturers by allowing them to mount the boxes right on their panels (today most inverters are bulky, separate appliances). The glitch is that most manufacturers are in China, where doing business is not straightforward to U.S. companies, says Bonanno.

Advisors at InnoSpring made introductions and helped Empower navigate visits to China, and the company has already signed a customer deal with one of the world’s top three solar-panel manufacturers, Bonanno says. Last week, it was seeking $5.5 million in new investment.

“What [Empower] have accomplished is a new model,” says Lei Yang, managing director of Northern Light Venture Capital, a Chinese firm that is one of InnoSpring’s backers. “Clean-tech companies here can get to a certain point with less capital. But to scale, they should think about Chinese customers and Chinese partners. That way you can get to the end of the tunnel a lot faster.”

This is a strategy that some U.S. startups are already pursuing. For example,EcoMotors, an engine technology company, recently signed a deal to have a Chinese power company build a manufacturing plant for its engines—at zero capital expense to the startup or its investors, board member Andrew Chung, a Khosla Ventures partner, said at the event.

Not all companies working at InnoSpring are new to China, and most aren’t involved in clean tech. Some, like the file transfer and sharing services DewMobile and Zapya, already have millions of users in China; they came to InnoSpring to create strategies for setting up shop in the United States. Others, such as Netspectrum, a payments company that uses QR codes for its Flash2Pay app, haven’t had much success raising money or finding users in the U.S. and are hoping for better luck in China, where the mobile market is less saturated.

Mobile security company TrustGo Mobile is the biggest success story so far. It came to InnoSpring around the time it launched about 18 months ago (see “TrustGo Promises to Guide You to Safer Apps”). Its CEO has worked in the U.S. and China and had founded the company in Silicon Valley, but with an R&D team based in Beijing. Its app picked up traction rapidly. Today, it has five million users in 80 countries and top ratings for virus detection from independent auditors.

At InnoSpring, TrustGo has participated in some of the weekly events and “office hours” held to introduce startups to mentors and major Chinese firms, like the Internet giant Tencent. Right now, TrustGo is weighing two acquisition offers, one from a U.S. company and one from a Chinese company (it won’t disclose more). At demo day, TrustGo CEO Xuyang Li accepted a graduation certificate. Whatever he decides, it looks as if InnoSpring will have its first successful exit.

Sharper Computer Models Clear the Way for More Wind Power

New prediction models can allow utilities to rely more heavily on wind and save millions.

By Kevin Bullis on May 14, 2013
The utility with the most wind power capacity in the United States, Xcel Energy, is relying more on this power source and saving millions of dollars thanks to new forecasting models similar to those used to predict climate change.

The forecasts, developed by the National Center for Atmospheric Research (NCAR) in Boulder, Colorado, could help address an increasing problem with wind power: how to integrate this intermittent resource into the power grid. NCAR is also developing improved models that could help forecast power from the sun.

“Having an accurate forecast allows us to bring on more renewable energy,” says Drake Bartlett, who is responsible for integrating renewables into Xcel’s grid. Utilities decide a day in advance which power plants will be operating on a given day. Inaccurate wind-power forecasts cause problems with this scheduling in two main ways. First, they force utilities to schedule backup power plants. These run inefficiently at low power, waiting to ramp up their production if less wind power is available than predicted. They waste fuel and are expensive to operate.

Second, bad forecasts make it difficult for utilities to justify shutting down baseload power plants, even if there might be more than enough wind to make them unnecessary. These plants—often coal or combined-cycle natural-gas plants—are expensive and time-consuming to shut down and restart. If they’re shut down and wind power is lower than expected, the utility has to use more expensive power from faster-responding plants or turn to the high-priced spot market. If, on the other hand, the utility leaves the baseload plants on, it may have to curtail wind power, perhaps by telling wind farms to turn off some turbines. In that case, the utility loses money two ways. It has to pay for the fuel to run the baseload plants, even though it didn’t really need power from them. And under its contract with wind farm operators, it still has to pay for the wind power it isn’t using.

The old forecasts allowed these scenarios to arise often. On average, predictions differed from actual power output by 20 percent, and sometimes they were as much as 50 percent off. The new forecasts decrease error by 30 to 40 percent, giving Xcel the confidence to reduce the number of backup plants online, Bartlett says. This has saved the utility $22 million in fuel. It hasn’t calculated the additional cost savings that have come from being able to avoid the spot market.

The new forecasts are also accurate enough to support shutting down baseload power. “A few years ago, we didn’t have the confidence to shut off baseload plants,” Bartlett says. “Now, if it’s a long weekend with beautiful weather and lots of wind, we’ll shut down a coal plant. That allows us to integrate more renewable energy.”

NCAR took several steps to make better forecasts. It improved on previous weather prediction models by running them at finer increments of time and space—something that requires added computing power. It combined its models with those from other organizations and with measurements of actual conditions at wind farms to predict wind speeds. Crucially, it then converts these wind speed predictions to estimates of how much power wind farms will produce, something that can differ considerably from what manufacturers claim (see “Better Computer Models Needed for Mega Wind Farms”).

Also, instead of just running a model once, NCAR runs it multiple times. The average result is typically more accurate, says Sue Ellen Haupt, director of the center’s Weather Systems Assessment Program.

Even though the models are run at high resolution, they don’t catch everything. The next step is to focus on better ways to predict two kinds of events—changes in wind speed, and weather that causes ice to form on wind turbine blades.

Fast changes in wind speed can be particularly difficult to deal with on the grid (see “Wind Turbines, Batteries Included, Can Keep Power Supplies Stable”). Icing predictions will also be important; it’s difficult to know just when a storm will create the right conditions to deposit ice on wind turbines, but when ice does form, it can greatly decrease the amount of power a turbine can generate. In the past, forecasts have led Xcel to plan for large amounts of wind, only to have power production drop off unexpectedly when ice formed.

Predicting solar power may be a bigger challenge altogether (see “A Solution to Solar Power Intermittency”). Power output from solar panels can change in seconds, and clouds are among the hardest things to account for in climate models. NCAR is using data from satellites and land-based sensors to improve its cloud predictions, and it’s working to predict how different amounts of sunlight (and other factors like temperature) translate into actual power output from solar panels.

Families edging out private equity in consumer deals

By Anjuli Davies

LONDON | Tue May 14, 2013 2:40am EDT

(Reuters) – From ketchup to hot drinks, family-run investment firms are shaking up the consumer deals market, squeezing out private equity players and forcing them to change strategy.

Families, some of whom made their money from the consumer sector, have deep pockets and are looking to secure their wealth for future generations. They are willing to wait longer for returns, giving them the edge over private equity funds looking for a quick turnaround.

Joh A Benckiser (JAB), the investment vehicle of the German billionaire Reimann family, bid for Douwe Egberts coffee last month, creating a hot drinks empire to take on the market leaders Nestle and Mondelez International, a goal that may take some time.

“Part of the reason for traditional private equity firms not being involved in the D.E. Master Blenders transaction was that the multiples were too high to make the returns work,” said Magnus Scadden , Head of EMEA Consumer and Retail at Houlihan Lokey, an investment bank.

Family-funded investments in the sector are expected to grow. In Europe this year 9 of the 51 newly minted billionaires have made their money through investments in the consumer sector, the Forbes Rich List calculated.

“Food and beverage continues to be a very attractive industry… It’s a perfect storm for these guys to be more competitive. It’s not that they play better, it’s just they have a lot of experience in the industry and, for the most part, a different and longer investment horizon,” said Jaime Arrastia, co-head of the consumer and retail investment banking division for Europe, Middle East and Africa at Barclays.

JAB have hired industry veterans to run the show, including CEO Bart Becht, who used to head up U.S. consumer products group Reckitt Benckiser and head of audit Olivier Goudet, a former CFO of U.S. confectionary giant Mars.

Bankers say other family companies with the potential to do such deals include Maxingvest, the investment vehicle of the Herz family, which owns the Tchibo coffee retail chain and a majority of skin care company Beiersdorf and Verlinvest, a Belgian family-owned investment holding company has invested in several consumer companies such as spirits group Remy Cointreau.

“They just have more tools in the box, more keys to unlock things,” said a sector banker of family run investment vehicles.

TEAMING UP

Co-investing is another option for family firms. 3G, a Brazilian private equity firm, recently teamed up with Warren Buffett’s Berkshire Hathaway to buy ketchup maker H.J. Heinz for $23.2 billion.

That deal was valued at a ratio of enterprise value to expected 2013 earnings of 14.6 times, a higher multiple than private equity firms generally bid.

Family vehicles are also now teaming up with each other, as in the case of the JAB deal for Douwe Egberts.

The Santo Domingo family, which made its fortune from beer, was a minority investor alongside JAB in the Douwe Egberts deal. Alejandro Santo Domingo will also become a non-executive member of the new board.

“We know these people for a long time,” Bart Becht, CEO of JAB told Reuters.

“What works very well in working with JAB, because JAB is a family holding, is to work with other family holdings because it’s much easier to agree on the long-term nature of our investments. JAB and its partners, we are looking at this as a 15-20 year investment.”

DEFENSIVE

Private equity firms, used to being the dominant force in consumer deals, are struggling to defend their territory.

“Private equity firms are very worried about this trend; it’s cutting them out of the picture,” said a sector banker.

The global market for consumer mergers and acquisitions, including food and drink manufacturers, has more than doubled as of early April, according to Thomson Reuters data, the best start since the go-go, pre-crisis days of 2007.

But private equity firms, which buy companies and try and boost their profitability by cutting costs or revamping them before selling them on, are losing out with just 17 percent of transactions by value carried out by them last year compared to over 40 percent in 2007.

“It’s difficult to make the returns work on such high multiples especially against players with a longer time frame and a proven track record of paying up, it’s difficult to crack work for PE,” said one partner in a private equity firm.

The private equity sector has had a lean time since the financial crisis as the flow of cash frombanks has virtually dried up making it difficult to finance billion dollar deals.

“At its peak, 60 percent of the wallet attributed to consumer was from private equity,” said another consumer banker. “And the leverage they were comfortable with meant they could compete with corporates who just wouldn’t use the same leverage. But that stopped like a light switch.”

It has also been harder for private equity to meet their high return targets in the current low interest rate environment as investors search for yield, driving asset prices even higher.

To compete, bankers say private equity groups are going to have to become more flexible on deal structures and accept lower returns and longer investment times.

“It’s a pretty ugly time for private equity. They are going to have to be more flexible and less predictable,” said one banker, who advises on takeovers in the consumer sector.

(Additional reporting by Martinne Geller in New York, editing by Alexander Smith, Carmel Crimmins and Anna Willard)

Small business optimism rises to six-month high

WASHINGTON | Tue May 14, 2013 7:56am EDT

(Reuters) – A gauge of confidence for small businesses rose in April to its highest in six months, a sign of resilience in an economy beset by Washington’s austerity drive.

The National Federation of Independent Business said on Tuesday its Small Business Optimism Index rose 2.6 points to 92.1, the highest reading since October.

About half the gain was because businesses expect better business conditions over the next six months. Firms also were more optimistic about creating jobs and about sales.

Economic growth is being crimped this year by tax hikes enacted in January and federal budget cuts that started in March. Congress and President Barack Obama agreed to the measures in a bid to tame the federal budget deficit.

Offsetting some of austerity’s bite, the U.S. Federal Reserve has kept interest rates exceptionally low, while falling gasoline prices have recently helped household finances.

The NFIB reported earlier this month that small businesses added workers in April.

(Reporting by Jason Lange; Editing by Andrea Ricci)

Small US manufacturers investing at pre-recession levels: report

CHICAGO | Wed May 1, 2013 3:37pm EDT

(Reuters) – Small U.S. industrial companies invested in their plants and equipment at pre-recession levels as 2012 came to an end, according to a report from PayNet Inc on the money that manufacturers are borrowing to finance capital expenditures.

Whether the surge in investment by small manufacturers — defined by PayNet as industrial companies with under $1 million in credit outstanding — continued in 2013 is an open question.

The report released on Wednesday follows data showing the U.S. economy regained speed in the first quarter, but not as much as expected, heightening concerns the recovery is losing momentum.

PayNet said its quarterly manufacturing index, which measures loan, lease and line of credit originations by small manufacturing companies, returned in the fourth quarter of 2012 to levels last seen in 2006, led by a surge in borrowing by instrument makers and transportation equipment manufacturers.

The index, which uses 2006 as its base, rose to 100 in the quarter ending December 31, meaning overall financed investment by small manufacturers was back at levels last seen six years ago.

Instrument makers led the industrial pack, PayNet said, originating 23 percent more loans, leases and lines of credit in the final quarter of 2012 than they did in 2006.

Transportation equipment makers borrowed 12 percent more in the fourth quarter than they in 2006, PayNet said.

Makers of industrial machinery and equipment — the biggest industrial subsector — also bounced back as the year ended, with borrowing up 2 percent from pre-recession levels, PayNet said.

PayNet’s report was released on the same day that the Institute for Supply Management (ISM) said the pace of manufacturing growth in the United States slowed in April.

The ISM said its index of national factory activity fell to 50.7 from 51.3 in March, coming in below expectations for 50.9.

A reading above 50 indicates expansion.

But in a sign of potential resiliency, the forward-looking new orders component edged up to 52.3 from 51.4, while production improved to 53.5 from 52.2.

Skokie, Ill-based PayNet collects real-time loan information, such as originations and delinquencies, from more than 200 leading capital equipment lenders.

The Skokie, Ill-based company compiles data for the Thomson Reuters/PayNet Small Business Lending Index, a monthly survey that measures the overall volume of financing to U.S. small businesses.

(Reporting by James B. Kelleher)

Small businesses added jobs in April: NFIB

WASHINGTON | Thu May 2, 2013 10:26am EDT

(Reuters) – Small businesses continued to add workers in April and nearly one fifth reported job openings they could not fill, evidence on the eve of a key U.S. monthly employment report that the nation’s labor market continues to gradually heal.

The National Federation of Independent Business (NFIB) said on Thursday employment grew by 0.14 workers per firm last month, a bit slower than the pace in March but still the fifth straight month of gains.

The government’s employment report is due on Friday and is expected to show 145,000 new jobs were created last month, staging a modest rebound from a disappointing reading of 88,000 in March. Unemployment is forecast to remain at a lofty 7.6 percent.

The NFIB also said 18 percent of business owners reported job openings that they could not match up with job seekers last month, the same level as in March.

The measure has a close inverse relationship with the unemployment rate and the NFIB said its failure to move higher suggests the unemployment rate will not fall, “unless, of course, more unemployed left the labor force.”

A declining U.S. labor participation rate, as people without work get discouraged and give up the search for employment, is one reason the unemployment rate may fall even though the economy is only growing slowly and the job market remains weak.

(Reporting By Alister Bull; Editing by Andrea Ricci)

Job market resilience eases growth concerns

By Lucia Mutikani

WASHINGTON | Fri May 3, 2013 3:20pm EDT

(Reuters) – Employment rose faster than expected in April and hiring was much stronger than previously thought in the prior two months, a sign of resilience that should help the economy absorb the blow from belt-tightening in Washington.

Nonfarm payrolls rose by 165,000 jobs last month and the unemployment rate fell to 7.5 percent, the lowest level since December 2008, the Labor Department said on Friday. The job counts for February and March were revised up by a net 114,000.

“This bolsters the case that the U.S. economy will be able to survive the combined headwinds of sequestration and a deepening recession in Europe,” said Scott Anderson, chief economist at Bank of the West in San Francisco.

Investors on Wall Street cheered the data, which beat economists’ expectations for a 145,000 jobs gain and a steady 7.6 percent reading on the unemployment rate.

U.S. stocks rallied, with the Standard & Poor’s 500 index and the DowJones industrial average rising to intraday record highs. The dollar rose more than 1 percent against the yen, while Treasury debt prices fell.

Payrolls rose by 138,000 jobs in March, 50,000 more than previously reported, and job growth for February was revised up by 64,000 to 332,000, the largest increase since May 2010.

But the gains last month were far below the 206,000 jobs per month average of the first quarter, the latest evidence the economy is cooling, even if not as quickly as earlier feared.

Indeed, the data provided a number of signs of a loss of momentum.

Construction employment fell for the first time since May and manufacturing payrolls were flat. The length of the average workweek pulled off a nine-month high and a gauge of the overall work effort fell.

Economists pin the slowdown largely on higher taxes that took hold at the start of the year and $85 billion in federal government spending cuts, known as the sequester, that went into effect at the beginning of March. Economies overseas have also weakened, cutting into U.S. export growth.

While the U.S. economy grew at a 2.5 percent annual pace in the first quarter, data on construction spending, retail sales and trade suggested it ended the period with less speed.

Further, factory data for April imply the economy braked further at the start of the second quarter, a thesis supported by a report on Friday that showed the pace of growth in the services sector in April was the slowest in nine months.

“We are probably going into a second-quarter soft patch, but it’s not something that’s going to derail the recovery,” said Julia Coronado, chief North American economist at BNP Paribas in New York.

FED STILL IN PLAY

The 0.1 percentage point drop in the jobless rate reflected a gain in employment, rather than people leaving the workforce.

Indeed, more Americans entered the workforce than in any month since October. The labor force participation rate – the share of working-age Americans who have a job or are looking for one – held steady at a 34-year low of 63.3 percent.

While the pace of hiring was stronger than expected in April, it remained below the roughly 300,000 jobs a month that economists say are needed over a sustained period to put a significant dent in unemployment.

While the jobless rate has dropped 0.4 percentage point since January, employment is still 2.57 million jobs below where it stood in December 2007. At April’s job growth pace, it would take about 16 months to make up that lost ground.

About 21.9 million people are either unemployed, working only part-time although wanting full-time work, or want a job but have given up the search.

Economists said the data did not appear strong enough to dissuade officials at the Federal Reserve from pressing forward with their bond-buying stimulus, given the immense slack still in the labor market. It did, however, dampen budding speculation the U.S. central bank might step up its purchases.

“It probably cools any expectations that the Fed is going to increase the asset purchases, especially with the unemployment rate declining,” said Raymond Stone, chief economist at Stone & McCarthy Research Associates in Princeton, New Jersey.

All the job gains last month were in the private sector, which added 176,000 new positions. Gains were led by a rebound in retail employment, which had dropped in March after eight straight months of increases. Retail payrolls rose 29,300.

Temporary help, a harbinger of future hiring, increased by the most since February. It has now risen for seven straight months.

“That tells me payroll growth is going to continue to be on a decent pace,” said Stone.

In a surprise, the construction sector shed 6,000 workers after 10 straight months of gains. Increases in residential construction were offset by declines in jobs for nonresidential builders and other construction workers.

Government payrolls dropped 11,000 after falling 16,000 in March. Most of the job losses last month came from the federal government, with big declines at the U.S. Postal Service, which is downsizing.

Average hourly earnings rose 0.2 percent. But with hours worked by private workers slipping to 34.4 hours from 34.6 hours, weekly earnings actually fell.

“The decline in income coupled with a low saving rate does not bode well for consumers,” said Michelle Meyer, a senior economist at Bank of America Merrill Lynch in New York.

(Reporting by Lucia Mutikani; Editing by Tim Ahmann and Neil Stempleman)