Correction to This Article
Earlier versions of this article about the unemployment rate falling sharply for a second straight month in January incorrectly described one key measure of the U.S. job market. The article should have said that a broad measure of joblessness that fell to 16.1 percent in January includes people unemployed under the conventional definition of the term, in addition to those who have part-time jobs but want full-time work and those who have given up looking for a job out of frustration.
Unemployment rate plunges to 9% in January, but only 36,000 jobs added

By Neil Irwin
Washington Post Staff Writer
Friday, February 4, 2011; 10:11 PM

Unemployment fell sharply for a second straight month in January, according to a government report released Friday that offers reason for optimism about the labor market even as the prospects for American workers remain uncertain.

The jobless rate fell to 9 percent in January from 9.4 percent in December and 9.8 percent in November. In a promising sign, the improvement in January reflected the success of nearly 600,000 more people in finding work. By contrast, the rate fell in December in part because people had dropped out of the labor force, too discouraged perhaps to even look for work.

Still, many economists find the two-month drop, the largest since 1958, too good to be true and expect it to edge back up in the months ahead.

The decrease in the unemployment rate offers little comfort, in particular, because a separate survey of employers released Friday showed that job growth was anemic in January. Employers added only 36,000 jobs last month, a quarter of what forecasters had expected. The disappointing showing was probably caused in part by snowstorms across a huge swath of the nation.

The new findings themselves add up to a wintry mix, and economists were struggling to discern the true state of the job market.

"This jobs report is like looking in a fun-house mirror," said Stuart Hoffman, chief economist at PNC Financial Services Group. "It's hard to be sure what's really going on."

The two contradictory numbers are based on separate surveys - of employers for the job growth data and households for the unemployment rate. Given the divergence, even White House economists, who would be expected to rejoice at the steep drop in unemployment, advocated caution in interpreting the numbers.

"You never want to read too much into a single month's data," Austan Goolsbee, chairman of the Council of Economic Advisers, said in an interview. "It's certainly a good sign that the unemployment rate is coming down, but there will still likely be continued fluctuations going forward."

House Speaker John A. Boehner (R-Ohio), however, said the weak job creation shows that the Obama administration's push to speed the economic recovery isn't working.

"The spending binge is hurting job creation," Boehner said in a statement, "eroding confidence, draining funds away from private investment and spreading uncertainty among job creators."

The overall jobs picture is muddied by the effects of harsh weather and statistical adjustments that affected the January data. But the take-away from the new reports is this: The job market isn't nearly as positive as implied by the steep drop in unemployment. Nor is it nearly as discouraging as the weak job growth suggests.

"The employer survey shows very meager job gains," said Gary Burtless, a senior fellow at the Brookings Institution who studies the labor market. "The household survey shows robust employment growth and a sharp drop in the unemployment rate. It is wrong to think the truth must lie exactly halfway between these two possibilities. However, a betting man would not put all his money on just one of the surveys either."

Other recent indicators have shown some pickup in the job market. For example, the number of people filing new claims for unemployment insurance benefits last week fell to 415,000, from 457,000 the previous week. And recent business surveys have shown greater confidence about hiring in the corporate sector.

In theory, a job should not disappear from payrolls because a snowed-in employee can't make it to work for a few days, so long as they work at all during the second week of the month. But employers don't always fill out surveys correctly, and steep declines in employment are frequently reported in months with severe weather. Some of the industries where the most jobs were shed were those that are most affected by weather, namely construction and transportation.

Some 886,000 Americans were unable to work the week of the survey, many more than the 417,000 kept from work by bad weather during a typical January.

If analysts are correct that the weak job creation was driven more by weather than by a fundamental softness in the economy, the reports in February and March should show stronger job growth.

The lower jobless rate also requires some statistical parsing. The Bureau of Labor Statistics, as it does every January, updated its estimate of the U.S. population. This year, the bureau estimated that the population fell by 347,000, which caused the proportion of Americans who have a job to rise more than it would have if the population estimate had remained steady.

In one promising sign, the number of people working part time but who want full-time work and those who have given up looking for a job out of frustration fell to 16.1 percent, from 16.7 percent in December.

The survey of households also captures people who are self-employed and who work in agriculture. The data from employers, on which job creation statistics are based, do not include those figures.

On Thursday, Federal Reserve Chairman Ben S. Bernanke said that although he expects economic growth to strengthen this year, "until we see a sustained period of stronger job creation, we cannot consider the recovery to be truly established."

The January report is likely to do little to lead the Fed to reconsider its policies of keeping interest rates very low while buying Treasury bonds to encourage growth.

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