Jobless Rate Drops, 112,000 Jobs Added

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The nation's unemployment rate dropped to 5.6 percent in January to the lowest level in more than two years as companies added just 112,000 new jobs — fewer than expected but enough to keep alive hope for a turnaround in the struggling job market.

The jobless rate fell 0.1 percentage point last month to the lowest level since October 2001, when it was 5.4 percent, the Labor Department said Friday. January's rate matched the 5.6 percent posted in January 2002.

Employers added new jobs last month at a pace not seen in three years. The last time payrolls expanded more than 112,000 was in December 2000, when companies added 124,000 positions.

But economists were disappointed, saying they had expected a larger increase of 150,000 new jobs or more.

"It is not disastrous news, but it is definitely disappointing," said Bill Cheney, chief economist at John Hancock Financial Services.

Added Ken Mayland, president of ClearView Economics: "This economy under normal circumstances should be generating 200,000 to 300,000 a month" in new jobs.

Analysts are looking for monthly payroll gains of 300,000 or more for sustained job growth, and the economy remains far from that mark.

White House press secretary Scott McClellan said the lower jobless rate means the president's job and growth plan is working.

"Since August of last year, there have been 366,000 new jobs created," McClellan said. "The unemployment rate of 5.6 percent is well below the average of the 70s, 80s and 90s. ... Today's report is another sign that the economy is continuing to grow strong and that jobs are being created."

The report sent stock prices slightly higher on Wall Street in morning trading.

Job growth is expected to be a key issue as November's presidential election nears, and President Bush could be vulnerable. The economy has lost more than 2 million jobs since he took office, giving him the worst job creation record of any president since Herbert Hoover.

Still, January's hiring gains marked the fifth straight month of increases, and followed a revised 16,000 new jobs added in December, better than the 1,000 initially reported.

Friday's report "is good news for workers, and it's yet another sign that the economy has turned the corner and the nation's job market is getting stronger," said Labor Secretary Elaine Chao. "The economy has created jobs in each of the last five months, with hundreds of thousands of Americans finding new jobs."

Hiring by retailers and construction companies accounted for much of the overall increase in payrolls. The nation's factories continued shedding jobs, though at a slower pace than in previous months.

Some economists think hiring really is occurring in the economy, but it is not being reflected in the Labor Department's monthly survey of business payrolls. In the separate survey of households, employment jumped by 496,000 last month.

The household survey counts self-employed workers and contract workers, which are increasing. The survey of businesses does not.

"They're not recording the outside contractors — they're not reflecting something that is tremendously fundamental now to the American corporate scene, and that's outsourcing to outside contractors," Mayland said.

The Labor Department's Bureau of Labor Statistics acknowledged the continuing discrepancies, and said it is investigating.

Businesses are being squeezed by intense competition from other countries, and are holding down costs by not hiring new, full-time workers in the United States. Instead, they are outsourcing, working their existing employees harder or shipping jobs overseas.

Friday's report showed that workers are indeed putting in longer hours, with the average work week climbing by 0.2 hour to 33.7 hours. The manufacturing work week increased by 0.3 hour to 40.9 hours.

"Employers are working their workers longer hours instead of hiring more bodies. For the economy, that counts," Mayland said, noting that it produces more income for consumers to spend, keeping the economy afloat. "This is telling you the economy really is growing very fast."

Construction companies helped boost overall hiring gains, adding 24,000 new jobs last month. Buoyed by continued strength in the housing market, the sector has added 147,000 positions to its payrolls since last March.

In the service sector, where most of the job growth is taking place, retailers added 76,000 new jobs. Garden supply and home building material stores were particularly strong, also reflecting a strong housing market.

About 8.3 million people remained unemployed in the United States last month.