Report sends out mixed signals: Job growth slow but jobless rate dips

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Posted: Saturday, February 8, 2014 12:00 am | Updated: 2:03 pm, Thu Jun 5, 2014.

Employers added jobs at a slower-than-expected pace in January, the second month in a row that hiring has been disappointing and a sign that the U.S. labor market remains anemic despite indications of growth elsewhere in the economy.

Payrolls increased by 113,000, the Labor Department reported Friday; economists had expected a gain of 180,000. The unemployment rate, based on a separate survey of households that was more encouraging, fell by a tenth of a percentage point, to 6.6 percent.

The data for January came after an even more disappointing report on the labor market for December, which was revised upward only slightly Friday, to show a gain of just 75,000 jobs, from 74,000. The level of hiring in January was also substantially lower than the average monthly gain of 178,000 positions over the past six months, as well as the monthly addition of 187,000 over the past year.

The two weak months in a row will prompt questions about whether the Federal Reserve acted prematurely when policymakers in December voted to begin scaling back the central bank's expansive stimulus efforts.

The new data is not expected to alter the Fed's course, economists said, but another poor report on hiring next month might force policymakers to rethink their plan when they next meet in late March.

“In one line: grim,” Ian Shepherdson, chief economist at Pantheon Macroeconomics, said in a note to clients.

While seasonal adjustments may have played a role and upward revisions for hiring in October and November were more encouraging, he said, “The payroll rebound clearly is disappointing; none of the ground lost in December was recovered.”

Other economists conceded the picture for January was hardly bright but cautioned it was too soon to conclude there had been a fundamental loss of momentum in the economy, especially given seasonal fluctuations in the data and the possibility that weather inhibited some hiring.

“We're not seeing the takeoff that people wanted to see, but it's not a disaster,” said Julia Coronado, chief economist for North America at BNP Paribas. “The 113,000 figure is definitely way below trend, but we want another month or two of data before we can draw conclusions.”

Investors seemed to take heart in significant job gains in construction and manufacturing, and stocks rose sharply Friday.

One mystery economists will be focusing on is why employment gains have not kept up with economic growth as measured by gross domestic product, which picked up substantially in the second half of 2013. The annualized pace of expansion was 3.2 percent in the fourth quarter, and 4.1 percent in the third quarter.

One reason may be that new technologies are allowing employers to make do with fewer workers, for instance the use of automated customer service systems instead of call centers, or Internet retailers' taking over from brick-and-mortar stores where sales associates prowl the floors.

In the report on January, one sector holding back payrolls was the government, which shrank by 29,000 jobs in January. Excluding that loss, private employers added 142,000 positions, a slightly better showing.

Several other sectors that had been strong in recent months — education and health care, as well as retailing — also lost positions, contributing to the overall weakness.

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