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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; A01

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."

Forecasters generally expect job creation to resume in earnest by this spring. But the unemployment rate may drift upward in the months ahead anyway.

For one, modest job growth is not enough to drive the unemployment rate down in a sustained way. Over time, the nation needs about 130,000 new jobs a month to keep up with population growth. Also, as the economy improves, people who had given up looking for work may return to the labor force, causing the jobless rate to increase.

Obama and congressional leaders have said they will focus upcoming efforts to stimulate job growth on smaller businesses, which have been slow to recover from the downturn.

At Who Cut Your Hair, a salon in Gaithersburg, sales were down 25 percent last year, said owner Nasrin Goodarzi. The salon has three vacant positions -- including slots for a shampoo assistant and a receptionist -- that Goodarzi hopes to fill whenever business picks back up. But right now, "there is no extra money to spare" on hiring new employees, she said.

While financial markets have healed enough that large firms are able to raise money through stocks and bonds, smaller firms are still suffering and have less ability to borrow money.

During an appearance in Lanham on Friday, Obama proposed a temporary increase in the maximum Small Business Administration Express loans from $350,000 to $1 million. The SBA guarantees 50 percent of those loans, reducing the risk for lenders.

Obama also proposed temporarily allowing the refinancing of owner-occupied commercial real estate loans, under an SBA program that now provides loan guarantees for the development of real estate and other fixed assets.

The White House envisions these proposals as complements to a series of others made by the president to bolster infrastructure, subsidize home weatherization projects and provide tax credits for small businesses hiring new workers. They would be included in a jobs bill now being assembled in Congress.

After meeting with small-business owners at Oasis Mechanical Contractors on Friday, Obama called on Congress to quickly enact the proposals. The Senate is set to begin debating the measures next week.

Even as the unemployment rate dipped, the number of long-term unemployed -- those without work for six months or more -- continued to rise in January.

Khary Matthews of the District said he was laid off in August from his job as a language arts teacher at a charter school. Now, instead of waking up for work, he said, he puts in eight hours a day or more scouring the Internet for jobs, writing cover letters and perfecting his résumé.

As he sat in the District's unemployment office this week, he said, "I have a full-time job looking for another gig."

Staff writers Binyamin Appelbaum and Ylan Q. Mui contributed to this report.

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