Jobless rate takes steep drop to 9%

WASHINGTON —  The nation’s unemployment level dropped more sharply than expected in January, surprising economists and suggesting the possibility of more underlying strength in the recovery than many had believed.

But the good news in the Labor Department’s January jobs report was tempered by reports that employers overall added far fewer jobs than had been projected -- and by the disruptive but hard-to-measure effect of severe winter weather that threw a wild card into the equation.

The economy produced just 36,000 net new jobs last month, as payrolls in construction, transportation and the rapidly growing temporary-help sector fell back, the data released Friday showed.

At the same time, retail hiring was solid and manufacturing employment surged, reflecting stronger car sales and export orders. Those gains helped drive the overall jobless rate to a nearly two-year low of 9% last month. That was a substantial drop from the 9.4% in December and 9.8% in November.

The last time the unemployment number sank by that much over a two-month period was in the fall of 1958, when there was a swift rebound in hiring after a recession.

The current economic recovery has been very slow to generate new jobs.

Revised data released Friday showed that the economy lost 8.7 million jobs in 2008 and 2009, even more than previously estimated, and that the nation had regained only about 1 million jobs in the last year, or an average of fewer than 100,000 a month.

Secretary of Labor Hilda L. Solis said she was heartened by the January decline in joblessness. She suggested that there may be more hiring beneath the surface -- by start-ups and other small businesses whose activity is not always fully captured in the government’s monthly surveys.

She also pointed to the biggest bright spot in the payroll report: U.S. manufacturing employment jumped by 49,000 in January.

“And we continue to create jobs,” she said.

But a number of private economists expressed disappointment in the latest jobs report.

While acknowledging that bad weather clearly hurt employment last month -- Labor Department officials surveyed employers during the week of Jan. 9, when freezing temperatures slammed the South -- the experts said there were few indications that employers other than manufacturers were loosening up their Scrooge-like hiring policies.

“I’m impressed to see the unemployment rate go down to 9 [percent], but I just don’t think it’s real and will stay there,” said Dean Baker, co-director of the Center for Economic Policy Research in Washington.

He considered the sharp drop more of a statistical fluke than reflecting substantive gains in employment.

Overall, analysts were expecting about 140,000 new jobs in January, slightly more than the upwardly revised growth of 121,000 in December.

Adding to the payroll weakness last month were budget-strapped governments, which continued to shed jobs.

Given strength in other economic data in recent weeks, job growth remains the missing link in the recovery.

“It’s disappointing in that we didn’t see the gains in absolute number of jobs,” said Patrick O’Keefe, economic research director at the financial advisory firm J.H. Cohn and former deputy assistant secretary at the Labor Department.

But he was cautious about reading too much into one month’s data, especially a month in which weather and annual population revisions added to the complications.

O’Keefe said he was still looking for employers nationwide to add an average of 250,000 jobs a month this year -- more than double last year’s pace.

Many investors and bond traders seemed to be encouraged by Friday’s mixed report. Bond yields rose, suggesting expectations of higher inflation as better job growth buoys the economic recovery. Stock indexes inched up too: The Dow Jones industrial average added 29.89 points, or 0.2%, to a new 21/2-year high of 12,092.15.

“The economy does seem to be gaining some momentum,” said Lynn Reaser, president of the National Assn. for Business Economics. Her group’s January survey of industry economists revealed the best six-month employment outlook in 12 years.

The biggest threat now, Reaser said, is the recent surge in oil prices in the wake of the crisis in Egypt.

“That could dampen consumer spending and company profits and their willingness take on additional workers,” she said.

Other surveys of small businesses also suggest greater optimism in hiring, though no dramatic uptick. Economists have pointed to a number of factors that may be constraining new hires, including greater offshoring, or sending jobs to other countries, increases in productivity through technology and concerns about rising healthcare insurance costs for employers.

Whatever the immediate strengths or weakness in the job market, Friday’s release of annual revisions indicated that full recovery is even further away than previously thought.

One important measure of labor vitality is the share of the working-age population that is employed. In January, that share was near a three-decade low of 58.4%, compared with about 63% in 2007. That means about 7 million fewer people 16 years and older have jobs today than at the end of 2007.

“The significance of that is, in contemporary America, most of the households have multiple earners,” O’Keefe said. “Their spending patterns -- car loans and mortgages -- are predicated on multiple incomes, not primary breadwinners.”

So unless job growth picks up and more of the 14 million officially unemployed -- and the millions more who dropped out of the labor force in recent years -- get back on their feet, the power of consumer spending may fizzle.

With stronger factory orders and retail sales, “at some point that might move employers to be more confident and commit to hiring,” said Harry Holzer, a labor economist with Georgetown University and the Urban Institute. “It just hasn’t happened yet.”

don.lee@latimes.com