The unemployment rate dropped below the 4% level for the first time since January 1970 to 3.9%, the Labor Department said in this morning's release of the employment report A total of 340,000 people were added to the payrolls in the month of April. Average hourly earnings increased 0.4%.

The drop in the unemployment rate supports the growing sentiment that the

Federal Reserve

will raise interest rates by 50 basis points at its May 16 meeting, rather than the now usual 25-point hike. Bonds and stock futures dropped on the news, and while

Nasdaq

futures quickly recovered, the

S&P

futures were recently in negative territory.

Nonfarm payrolls rose 340,000 in the month of April, less than the expected 358,000 estimate as forecast by

Reuters

, and after an upward revision in March to 458,000 from 416,000.

Economists were calling for a decline in the unemployment rate to 4.0%, after March's unrevised figure of 4.1%.

The Federal Reserve has been worried that the decline in the pool of available workers will result in a strong rise in wage inflation, as employers scramble to keep workers at their respective companies. Wage pressures, after remaining largely in check during the last couple of years, are beginning to intensify, evidenced by the recent surge in costs measured in the

Employment Cost Index.

Census workers actually were less important to the overall increase than expected; excluding census workers, nonfarm payrolls increased 267,000, the Labor Department said. That was stronger than expected -- many economists estimated that this month's payroll increase would include about 100,000 to 150,000 census workers.

Construction workers fell 55,000, while manufacturing jobs increased 11,000. The overall gain in payrolls showed that labor markets remained extremely tight and job creation continues to be strong. Service-producing jobs added 380,000, including 107,000 in government workers.

Average hourly earnings rose 6 cents to $13.64, after March's figure was revised downward to $13.58. On a year-over-year rate, average hourly earnings rose at a 3.8% rate, compared with 3.7% at this time last year, and that increase is generally in line with the trend of the last couple years.

The average workweek was 34.6 hours per week, compared with March's 34.5 hours per week and a 34.5 hour per week estimate.