U.S. unemployment rate drops to 9.7 percent in January

WASHINGTON (AP) - The outlook for jobs became a bit less bleak with January's unexpected decline in the unemployment rate, which fell to 9.7 percent from 10 percent as more people said they had jobs.

Still, Friday's unemployment report showed just how deep the job crisis remains. The government now estimates 8.4 million jobs vanished in the Great Recession, and economists think the nation would be lucky to get back 1.5 million of them this year. And they say it will take at least three to four years for the job market to return to anything like normal.

A Labor Department survey of households found that 541,000 more Americans had jobs last month. But most of those gains were attributed to seasonal adjustments to the data. Without those adjustments, which account for reduced hiring during winter, the data show fewer people had jobs last month.

The unemployment rate fell to its lowest level since August, primarily because a department survey of households found a sharp increase in the number of Americans with jobs. Analysts expected an increase to 10.1 percent.

A separate survey of businesses found that employers shed 20,000 jobs last month.

President Barack Obama said the unexpected drop in the unemployment rate was "cause for hope but not celebration." Speaking at a small business in a Washington suburb, Obama said the figures show modest progress but cautioned that the data will continue to fluctuate for months.

January's report offers hope that employers may start adding jobs soon. Excluding the beleaguered construction industry, the private sector as a whole added 63,000 positions.

John Silvia, chief economist at Wells Fargo, said the drop in the unemployment rate wasn't a result of a shrinking labor force, which has held the rate down in previous months.

"It simply was, people found jobs," he said. The report is "consistent with continued improvement in the labor market."

But Paul Ashworth, an economist at Capital Economics, noted that the economy has been growing for six months, yet company payrolls are still shrinking.

"Based on what we've seen so far, we think it is fair to characterize this as another jobless recovery," Ashworth said.

Left behind are people like Aimee Brittain, 31, who said she can't get employers to return her calls. She's hunting for work as a secretary after being laid off from a commercial real estate firm near her home in suburban Atlanta.

"I'm fighting against people with master's degrees for receptionist jobs," Brittain said. "I can't compete."

Stock indexes fell after the unemployment report was released. The Dow Jones industrial average dipped below the 10,000 line, falling about 66 points, or 0.66 percent, to 9,936.

The employment figure for November was revised higher to show a gain of 64,000 jobs, up from 4,000. But the December figure was revised lower, canceling out the gain.

The manufacturing sector added jobs for the first time since January 2007. Its gain of 11,000 jobs was the most since April 2006.

Retailers added 42,100 jobs, the most since November 2007, before the recession began. Temporary help services gained 52,000 jobs, its fourth month of gains. That could signal future hiring, as employers usually hire temp workers before permanent ones.

The average work week increased to 33.3 hours, from 33.2. That indicates employers are increasing hours for their current workers, a step that usually precedes new hiring.

The number of part-time workers who want full-time work, but can't find it, fell by almost 1 million. That lowered the "underemployment" rate, which also includes discouraged workers, to 16.5 percent from 17.3 percent. That could be a result of some part-timers moving to full-time work, economists said.

The federal government has begun hiring workers to perform the 2010 census, which added 9,000 jobs. That process could add as many as 1.2 million jobs this year, though they will all be temporary.

But job cuts at the state and local levels canceled out those gains, as government employment fell by 8,000.

Most of the 75,000 jobs lost in the construction industry came from the commercial building sector, the department said. Construction lost more jobs than other sector.

Still, jobs remain scarce even as the economy is recovering. Gross domestic product, the broadest measure of the nation's output, has risen for two straight quarters. GDP rose by 5.7 percent in the October-December quarter, the fastest pace in six years.

Many economists say businesses are reluctant to add workers because it's not clear whether the recovery will continue once government stimulus measures, such as tax credits for home buyers, fade this spring.

The debate over health care reform and the scheduled expiration of some Bush administration tax cuts at the end of this year may also hold back some employers, many economists said.

"Until some of these uncertainties from Washington get cleared up, businesses, particularly small businesses, are going to be loath to do any additional hiring," said Hank Smith, chief investment officer at Haverford Investments.

High unemployment could restrain consumer spending, which has led most recoveries in the past. That's why many economists think the current rebound will be weak.

Public concern about persistent unemployment has forced Obama and members of Congress to shift their attention to jobs and the economy and away from health care reform. The Senate will begin working Monday on legislation that would give companies a tax break for hiring new workers, Majority Leader Harry Reid said Thursday.

The budget plan Obama released this week projects unemployment will still be very high - 9.8 percent - by the end of this year.

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AP Business Writer Christopher Leonard in St. Louis contributed to this report.