Drop in unemployment rate shows signs of an economic reprieve

By Neil Irwin, Michael A. Fletcher and Kafia Hosh
Washington Post Staff Writer
Saturday, February 6, 2010

A surprising dip in the unemployment rate for January offers promise that the job market is finally stabilizing after a long, steep decline.

The latest employment data released Friday was not uniformly positive. The nation shed an additional 20,000 jobs last month, the Labor Department said. But the decline in the unemployment rate to 9.7 percent, from 10 percent, is the strongest sign yet that the economy is now expanding quickly enough to begin making a dent in the vast ranks of the jobless.

"This is good news," said Gary Burtless, senior fellow at the Brookings Institution. "This isn't people dropping out of the labor force. It's a lot more people saying, 'Yeah, I have a job.' "

The signs of economic progress came amid continued jitters in the financial markets and new efforts in Washington to try to push job creation. The stock market closed up slightly following its sharp decline Thursday. The Standard & Poor's 500-stock index closed up 0.3 percent, after being down much of the day.

President Obama, seeking to accelerate job creation, offered proposals Friday to make it easier for small businesses to get government-backed loans to refinance their mortgages. And bank regulators issued a joint statement saying that banks should engage in "prudent small business lending."

While the economy began growing again last summer, improvement in the job market has been painfully slow. But the dip in the unemployment rate -- forecasters had expected it to remain unchanged -- showed that job creation may have finally resumed.

The new jobs report contained some conflicting signals -- particularly the decline in joblessness alongside the contraction in the number of jobs. The two sets of data are based on different surveys: The unemployment rate is based on a survey of households, while the payroll numbers come from a survey of employers. In the long run, these two measures of the job market track together, but in the short-run, they can diverge.

That is particularly true at turning points in the economy, when there are often mixed signals. The payroll figures, which showed the 20,000-job loss, are generally regarded as a more reliable month-to-month indicator of the health of the job market.

But in this case, the decline in the unemployment rate was so strong that analysts suspected it is showing a real shift in the economy, perhaps reflecting that more people are going to work for themselves or for newly formed businesses. Self-employment and small-business jobs are not as reliably captured in payroll figures.

Moreover, some of the report's fine print suggests that conditions are improving more broadly. The number of temporary jobs rose by 52,000, indicating that while businesses are still reluctant to bring on permanent employees, these firms are hiring temps to keep up with demand. And the average workweek rose to 33.9 hours, from 33.8, also suggesting companies were trying to keep up with greater demand.

There was also good news out of the manufacturing sector, which, after bleeding jobs for 24 months, finally added positions -- 11,000 in January.

"Labor market conditions are improving," said Anthony Chan, chief economist at J.P. Morgan Private Wealth Management. "It's not a slam-dunk, but these numbers do show that there is marginal improvement."

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