WASHINGTON (KCBS/AP) – The unemployment rate fell to a two-year low of 8.8 percent in March, capping the strongest two months of hiring since before the recession began.

The economy added 216,000 jobs last month, the Labor Department said Friday. As the economy expands, many Silicon Valley companies are adding to their payrolls at a rapid pace. Tom Pendleton, a high-tech job seeker said his colleagues are seeing “an increasing number of interviews versus three or four months ago, many of them landing positions.”

KCBS’ Matt Bigler Reports:

Some companies are offering incentives like iPads and shuttle services to lure top talent.

Carl Guardino, president and chief executive officer of the Silicon Valley Leadership Group, said high tech companies are hiring now because orders are way up.

“When orders are up you can only put off hiring for so long…the economy looks good,” Guardino comments.

Google Inc. said earlier this year that it plans to hire more than 6,200 workers in 2011, the biggest expansion by the Internet’s most profitable company. That would increase the company’s work force by more than 25 percent.

Factories, retailers, the education and health care sectors and professional and financial services also expanded payrolls. Those job gains offset layoffs by local governments.

However, Karl Mills, a San Francisco investment adviser, said the Bay Area has a somewhat skewed perspective on the economy.

“The job growth is particularly favorable for the Bay Area because you have the combination of technology, bio-tech, financial services, and tourism.”

Aside from layoffs by local governments, other sectors eliminating jobs included construction, transportation and warehousing, and information services, such as telecommunications. State government hiring was flat, after four straight months of layoffs.

Surprisingly, a large number of people who stopped looking for work during the downturn have yet to start looking again.

Private employers, the backbone of the economy, are driving the gains. They added more than 200,000 jobs for a second straight month. It was the first time that’s happened since 2006 _ more than a year before the recession started.

“The U.S. labor market is finally making some serious progress,” said Sal Guatieri, economist at BMO Capital Markets Economics.

The unemployment rate dipped from 8.9 percent in February. The rate has fallen a full percentage point over the past four months. That’s the sharpest drop since 1983.

Economists predict employers will add jobs at roughly the same pace for the rest of this year. That would generate about 2.5 million new positions. Still, that would make up for only a small portion of the 7.5 million jobs wiped out during the recession.

A big factor in the lower unemployment rate is that the proportion of people who either have a job or are looking for one is surprisingly low for this stage of the recovery.

People who stopped looking for work during the downturn are not counted as unemployed. If many out-of-work people start looking for work again, they will be counted and the unemployment rate could go up. That could happen even if the economy is adding jobs.

Local governments, wrestling with budget shortfalls, cut 15,000 workers last month and are expected to keep shedding jobs. Home prices are falling amid weak sales and a record number of foreclosures. Construction spending dropped in February to a 12-year low. Higher food and gas prices are leaving consumers with less disposable income to spend on other goods and services.

Workers’ paychecks were flat in March. Average hourly earnings held steady at $22.87, unchanged from February. Over the past 12 months, wages have lagged behind inflation. Workers have little bargaining power to demand big pay raises because the job market is still healing slowly.

Another report out Friday showed that manufacturing activity cooled off a bit last month after expanding in February at the fastest pace in nearly seven years. Still, the sector grew for the 20th straight month, another positive sign for the economy.

The number of unemployed people dipped to 13.5 million in March, still almost double since before the recession began in December 2007.

Including part-time workers who would rather be working full time, plus people who have given up looking altogether, the percentage of “underemployed” people dropped to 15.7 percent in March, the smallest share in two years.

Professional and business services, including accountants, bookkeepers, engineers and computer designers, added 78,000 positions, the most since November. Of those, 29,000 were temporary positions.

Factories added 17,000 jobs in March, the fifth straight month of gains. Retailers added nearly 18,000 jobs, after cutting them in February. Financial services expanded payrolls by 6,000, following two straight months of cutbacks. Education and health services expanded employment by 45,000, leisure and hospitality added 37,000 jobs.

Retailer Aaron’s Inc. said this week that it plans to create almost 1,000 jobs in the United States and Canada this year. The company sells and leases residential furniture, consumer electronics, home appliances and accessories.

(Copyright 2011 by CBS San Francisco. All Rights Reserved. This material may not be published, broadcast, rewritten, or redistributed. Wire services may have contributed to this report.)

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