January Jobs Data Better Than Expected

Jobs, jobs and more jobs. That was the hope for this morning's government report on January employment. While it wasn't a blowout, the report wasn't nearly as bad as some economists had predicted.

The unemployment rate dropped from 10.0% to 9.7%, and non-farm payrolls were essentially unchanged with a loss of 20,000. The payroll number represented a surprising improvement after December's revised loss of 150,000 jobs. Some economists had feared the economy would shed upwards of 100,000 jobs and that the jobless rate would hit 10.1%.

Still, while the report was encouraging, economists say the labor market may be weaker than it seems. The Labor Department incorporated adjustments and new estimates of the working-age population in January, which can distort comparisons to previous months. And January is historically a volatile month for jobs because of seasonal adjustments from December, when employers typically add workers temporarily. "There are a lot of things that are clouding the message right now," says economist Ryan Sweet with Moody's Economy.com. "You don't want to read too much into it."

Indeed, the data was full of mixed messages. While household employment rose by 541,000, weekly hours worked edged up only slightly, from 33.8 to 33.9. That's still very low. And it suggests that employers are able to squeeze more out of workers without adding to payrolls. The economy would have to generate 100,000 to 150,000 jobs a month for unemployment to trend lower on a sustained basis. And the unemployment rate dropped in part because more people simply gave up looking for work-and are no longer counted as unemployed by the government. The number of "discouraged" job seekers rose to 1.1 million in January from 734,000 a year ago. "We still have a deep hole to climb out of," Sweet says.

This article is an excerpt from our Early Bird markets story, which was originally published the morning of Feb. 5.