Image: Sun Gaddis, right, a career center specialist, helps job seeker Paula Morgan
Rick Bowmer  /  AP
Sun Gaddis, right, a career center specialist, helps a job seeker Paula Morgan with her job search. Employers added just 36,000 new jobs last month — a smaller amount than analysts predicted. news services
updated 2/4/2011 7:16:42 PM ET 2011-02-05T00:16:42

The U.S. labor market slowed sharply last month, generating just 36,000 net new jobs, the fewest in four months, as winter storms depressed payrolls growth. Still, the unemployment rate dropped sharply to 9 percent, the lowest level in nearly two years.

Friday’s jobs report offered a conflicting picture of the nation’s hiring landscape. Unemployment fell because the Labor Department's household survey determined that more than a half-million people without jobs found work. The department conducts a separate survey of businesses, which showed tepid job creation. The two surveys sometimes diverge.

Analysts said severe winter weather likely reduced the number of jobs created in January. Harsh snowstorms last month cut into weather-prone industries like construction, which saw employment fall by 32,000, the most since May. Transportation and warehousing also fell by 38,000 — the most in a year.

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However, one bright spot was manufacturing, which added 49,000 jobs, the most since August 1998. And retailers added 28,000 jobs, the largest number in a year.

The unemployment rate has fallen by eight-tenths of a percentage point in the past two months. That’s the steepest two-month drop in nearly 53 years.

But part of that drop has occurred as many of those out of work gave up on their job searches. When unemployed people stop looking for jobs, the government no longer counts them as unemployed.

The number of people unemployed fell by more than 600,000 in January to 13.9 million. That's still about double the total that were out of work before the recession began in December 2007.

The January report also includes the government's annual revisions to the employment data, which showed that fewer jobs were created in 2010 than previously thought. All told, about 950,000 net new jobs were added last year, down from a previous estimate of 1.1 million. The economy lost about 8 million jobs in 2008 and 2009.

In the past three months, the economy generated an average of 83,000 net jobs per month. That's not enough to keep up with population growth.

The January report illustrates how job growth remains the economy’s weakest spot, even as other economic indicators point to a recovery that is strengthening. It is a key element missing in the nation’s economic recovery. Economic growth is gaining momentum, with factories busy and service firms expanding, but employment growth is one critical area that still lags.

Some analysts had been more optimistic in their forecast for job gain in January and thought the job gains could be larger after several positive economic reports were released Thursday. The service sector, which employs nearly 90 percent of the work force, expanded at the fastest pace in five years last month, retail sales increased, and factory orders grew in December.

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“Activity across the broader economy is picking up,” said Neil Dutta, an economist at Bank of America Merrill Lynch. “Momentum is improving.”

It takes about 125,000 new jobs a month just to keep up with population growth. The economy needs to add more than double that amount to make a significant dent in the unemployment rate. In the past three months, job gains have averaged only 128,000.

Rapid hiring that makes a large dent in unemployment "still remains elusive," Dutta said. He expects the unemployment rate will still be above 9 percent by the end of this year.

Story: Bernanke: More jobs needed for real recovery

Federal Reserve Chairman Ben Bernanke said Thursday that the United States can't fully recover from the worst recession in decades until hiring improves.

The economy is strengthening, and will likely grow at a faster pace this year as more confident consumers and companies spend more, Bernanke said in prepared remarks to the National Press Club in Washington, D.C. But he warned that the growth won't be strong enough to quickly drive down high unemployment, and it could take several years before it returns to more normal levels.

“Until we see a sustained period of stronger job creation, we cannot consider the recovery to be truly established,” he said.

Still, Thursday's data suggest the economy is gaining momentum, Bernanke said.

“Firms are beginning to say, ‘wait a minute we’re beginning to see enough increases in sales ... and we’ve exhausted our productivity gains,’” Federal Reserve Chairman Ben Bernanke said Thursday, while addressing reporters at the National Press Club.

Another positive sign for hiring is fewer people applied for unemployment benefits last week, reversing a spike from the previous week largely caused by harsh winter weather.

Applications fell to 415,000, the Labor Department said. That resumes a downward trend that took shape late last year and gave rise to hopes that employers would step up hiring.

Applications are well below their peak of 651,000, reached in March 2009, when the economy was deep in recession. Fewer than 425,000 people applying for benefits is consistent with modest job growth. But applications would need to fall consistently below 375,000 to signal a likely decline in the unemployment rate.

The Associated Press and Reuters contributed to this report.

Video: Puzzling jobs report points to slow recovery

  1. Closed captioning of: Puzzling jobs report points to slow recovery

    >>> we got the jobs report for the month of january this morning, and some of the numbers are puzzling. just 36,000 jobs were added to the nation's payrolls. about 110,000 fewer than expected, but look at this. at the same time, somehow the unemployment rate dropped sharply to 9%. that's an important number, it's a big deal . experts say severe weather and other factors have complicated the overall picture, but so many people have been looking for work much longer than they expected to. nbc's john yang has our report tonight from chicago.

    >> reporter: tony warren hasn't had steady work since he was laid off from his video production job two and a half years ago. he's burned through his savings and sold his motorcycle and more.

    >> i'll go around the house and just go we don't need that, we don't need that, we don't need that and i'll put it up on ebay.

    >> reporter: last month he and his wife, deanne, got help to pay the mortgage from their pregnant daughter and her husband.

    >> this is hard for me because it's very humbling. but we come down and there's $500 sitting on our desk. and deanne and i look at each other and go "where did that come from?"

    >> reporter: so many have been out of work so long the government is now tracking people who have been unemployed for as many as five years. the average length of unemployment is nine months, an all-time record.

    >> we've just never seen anything like this since the great depression. having this severe of job loss that's lasted for this long has translated into unprecedented lengths of unemployment.

    >> reporter: the toll is more than just financial.

    >> it starts wearing on you. you question your ability as a person, you know, what's wrong with me.

    >> reporter: psychologist reginald richardson says he sees depression and anxiety in people out of work for about a year.

    >> as their unemployment continues, then we see even greater symptoms. people having rage, greater frustration, disappointment, hopelessness.

    >> reporter: warren stays hopeful by volunteering at the same food bank he relies on for affordable meals.

    >> we're going to make it through this.

    >> yeah.

    >> come hell or high water , we're going to make it through it.

    >> reporter: looking forward to the day he can start to pay back all the help he's getting from those around him. john yang , nbc news, chicago.


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