U.S. Job Growth Disappoints in January

WASHINGTON – The U.S. economy created just 112,000 new jobs in January, far fewer than expected, government data showed on Friday in a disappointing report that will likely weigh on President Bush’s re-election campaign.

The fifth straight monthly gain in payrolls outside the farming sector was the largest since December 2000, the Labor Department said. However, its report still showed weak hiring 26 months after the economy climbed out of recession.

“The payrolls number was well below market expectations and confirms the jobs market in the U.S. is weak,” said Daniel Tenengauzer, vice president for foreign exchange at Lehman Brothers.

Analysts had been expecting the economy, which has been showing strength in areas outside the jobs market, to add 150,000 new jobs in January after an originally reported gain of only 1,000 the previous month. The department revised the December figure to an increase of 16,000.

HEALTHY GROWTH BUT FEW JOBS. Economists say the United States needs to add 150,000 jobs a month just to keep pace with growth in the labor force and to keep the unemployment rate steady. Since September, only 366,000 jobs have been added, or just over 70,000 a month.

“This is the weakest job creation rate relative to economic growth on record,” said Steven Wood, an economist at Insight Economics.

The economy grew at a healthy 4 percent annual rate in the final quarter of last year after a soaring 8.2 percent pace in the previous three months.

January’s unemployment rate ticked down to 5.6 percent, the lowest in two years, from 5.7 percent in December. Analysts were looking for the unemployment rate to hold steady.

The payrolls data is taken from a survey of employers, while the jobless rate is derived from a separate, smaller survey of households.

The dollar and stock futures initially slipped after the report and Treasury bond prices rose. Market expectations of a healthy report were boosted on Thursday when Federal Reserve Governor Ben Bernanke said he was “pretty confident” there would be an improvement in employment in the near future.

Stocks recovered later, however, as the market began to perceive that the soft jobs number would make the Fed keep interest rates low. A revival in the jobs market is seen as crucial for a sustained economic recovery and the central bank is expected to keep rates on hold until signs of this emerge.

“These numbers will not change the Fed's thinking,” said Rick Egelton, deputy chief economist at BMO Financial Group. “The Fed is on hold for the time being.”

JOB ISSUE LOOMS IN ELECTION. The weak labor market is expected to be a major issue among candidates in the presidential election. Since Bush took office, 2.2 million jobs have been lost and his opponents say his economic policies have helped the wealthy and done little to create jobs.

Many of the new jobs in January came from a 76,000 increase in the retail sector.

The Labor Department said that was because some retailers took on fewer employees than expected in November and December for the holiday season. This meant they did not shed as many afterwards, affecting the seasonal adjustment factor.

The troubled manufacturing sector cut jobs for the 42nd month in a row, despite some signs of a revival in factories seen in other economic data.

Employment in temporary help services fell for the first time since April 2003. Economists say temporary hiring often rises ahead of more-permanent hiring.

The report included annual benchmark revisions but these did not lead to a major change in the overall picture of a weak jobs market.

The Labor Department defended the accuracy of the employment count based on its survey of payrolls, disputing criticism the poll fails to capture jobs created by new businesses.

One bright spot in the report was a 24,000 increase in construction. Low mortgage rates have helped to fuel a housing boom.

In another encouraging sign for job seekers, hours of work rose to 33.7 per week from 33.5 in December. Employers often lean more heavily on existing employees before hiring more.

Average hourly earnings rose to $15.49 from $15.47 the previous month, the report showed.

Source: Reuters