Businesses kept hiring workers at a steady pace in January despite uncertainty over fiscal policy in Washington, but the gain was not enough to improve the nation’s jobless rate.
The Bureau of Labor Statistics reported Friday that the unemployment rate last month was 7.9 percent — slightly higher than December and essentially stagnant for the past five months. The country added 157,000 jobs, in line with expectations.
The numbers helped to temper surprising data released earlier in the week showing the economy shrank at the end of last year for the first time since the recession ended. The contraction was driven by a sharp pullback in government spending, but Friday’s jobs report confirmed the private sector continued to chug along. The Labor Department also raised its estimate of average monthly hiring in 2012.
The level of hiring still remains too weak to kick the economy out of neutral. And another dark cloud of uncertainty looms as lawmakers gird for more partisan gridlock over the national debt ceiling and federal spending cuts.
“You can drive in fog,” said Mark Vitner, senior economist at Wells Fargo. “You just can’t drive very fast.”
The Obama administration used the jobs data to call for a resolution on deep spending cuts and whether to raise the debt ceiling. Alan Krueger, chairman of the Council of Economic Advisers, said Congress risked “self-inflicted wounds to the economy” that could reverse the modest gains.
He highlighted job growth in construction, one of the industries hit hardest by the downturn. The sector added 28,000 jobs last month and has grown by 300,000 workers in the past two years.
The hiring in construction is linked to a turnaround in the housing market, where prices have been steadily rising and foreclosures have dropped off. That has given builders confidence to erect new homes and hire back workers who had sat dormant for years. The rebound has allayed fears that many of those workers were no longer employable.
But some economists remained concerned about the number of people sitting on the sidelines. The percentage of people looking for a job has held steady at about 64 percent for about two years, but that number is expected to grow as discouraged Americans return to the labor market. The surge would raise the national unemployment rate unless hiring began to accelerate.
Other bright spots included the health-care industry, which added 23,000 jobs and has been a consistently growing field. Retailers hired 33,000 people in January on the heels of a strong holiday shopping season. Consumers have proved particularly resilient in recent months, although the increase in the payroll tax that took effect at the start of the year could dampen future spending.
Meanwhile, government employment chipped away at job growth once again. The public workforce fell by 9,000 in January. The government has shed 74,000 jobs in the past year, and that number could grow if across-the-board draconian spending cuts known as “sequestration” take effect next month.
Robert Dye, chief economist of Comerica Bank, said that while the number of jobs created in January met expectations, it still represented a slower pace of growth in the labor market.
“We know that we’re facing increasing headwinds from fiscal tightening. We need to see some momentum from the economy to overcome that drag,” he said.
But where economists saw cautious optimism, Wall Street saw opportunity. The Dow Jones industrial average climbed above 14,000 Friday for the first time since before the financial crisis. All of the major indexes ended the day up about 1 percent.
“They’re pretty much ignoring all the negative news and only focusing on the positive,” said Yu Dee, head trader at ACE Investment Strategists in Vienna.
How Friday’s jobs report will influence the Federal Reserve’s efforts to stimulate growth remains unclear. The Fed has vowed to continue programs to ease lending at least until inflation reaches 2.5 percent or the unemployment rate hits 6.5 percent. It made no policy changes during its regular meeting this week.
Some analysts argued that the slight uptick to the jobless rate in January indicates it will take longer to meet that threshold. Others saw the upward revisions to 2012 as a sign that the economy is stronger than previously thought, which could bring the Fed’s programs to an end more quickly.
But the bottom line, said John Canally, investment strategist for LPL Financial, is that after a barrage of major economic data this week, the markets ended in the best position in more than five years.
“For the market, this is sort of their early Super Bowl celebration,” he said.