U.S. Economy: Unemployment Unexpectedly Falls to 9.7% (Update3)
(Updates markets in fifth paragraph.)
By Timothy R. Homan
Feb. 5 (Bloomberg) -- The unemployment rate in the U.S. unexpectedly dropped to 9.7 percent in January, indicating the labor market may be poised to climb out of its deepest slump since World War II.
More than half a million Americans found work, a Labor Department report showed today in Washington, helping push the jobless rate to the lowest since August. A separate survey of employers showed payrolls declined by 20,000 as construction companies and state and local governments cut back.
Manufacturers hired more workers for the first time in three years, expanded hours and boosted pay, which may lift consumer spending and sustain growth. Revisions to previous data increased the number of jobs lost in the recession to 8.4 million, adding impetus to the Obama administration’s push for fresh government measures to boost employment.
“Companies just can’t meet demand requirements with their existing labor force, so they have to increase the number of workers,” said Carl Riccadonna, a senior U.S. economist at Deutsche Bank Securities Inc. in New York, whose forecast for a 9.8 percent unemployment rate was the most optimistic in a Bloomberg survey. “This report does seem to indicate the economy is moving in the right direction.”
Stocks Fall
The Standard & Poor’s 500 Index fell 1.2 percent to 1,050.92 at 2:29 p.m. in New York as concern European governments will struggle to fund deficits overshadowed the unexpected decrease in the unemployment rate. The MSCI World Index of equities in 23 developed nations has dropped more than 10 percent since Jan. 14, marking a so-called correction. The dollar gained 0.7 percent to $1.3629 per euro.
Companies such as Cisco Systems Inc. plan to add staff as businesses update equipment and stimulus plans revive sales worldwide. San Jose, California-based Cisco, the biggest maker of networking equipment, predicted accelerating sales growth and said it will hire 2,000 to 3,000 people in the next several quarters.
“Almost every country is saying their momentum is better than it was before, and almost every business is saying it’s more optimistic,” Chief Executive Officer John Chambers said in an interview this week. “It shows a capital spending trend that’s hard to deny, on a global basis.”
Household Survey
The survey of households showed employment increased by 541,000 workers last month and the number of people in the labor force rose. The gain brought the participation rate, or the share of the population in the workforce, up to 64.7 percent from 64.6 percent.
Labor Secretary Hilda Solis called the decline in the unemployment rate a sign of “very cautious confidence.”
“It’s still unacceptably high and we’re going to continue to work on that,” Solis said in an interview with Bloomberg Television.
President Barack Obama has called job creation his top priority this year as administration projections forecast the unemployment rate to average 10 percent through 2010.
Obama will today back a temporary increase in Small Business Administration Loans from $350,000 to $1 million to encourage small business hiring, an administration official said. The president has previously endorsed $33 billion in small business tax cuts and incentives for hiring as well as a plan to use $30 billion of bailout money paid back by Wall Street financial institutions to help community banks make loans to small businesses.
Job Losses
More than 4 million jobs have been lost since Obama took office in January 2009, today’s figures showed. Early last year, Obama’s economic advisers forecast the $787 billion stimulus plan would keep unemployment below 8 percent.
“The long winter of this Great Recession seems to be drawing to a close,” said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York. “There is no ‘new normal’ or structural impediment to this recovery.”
Mohamed El-Erian, chief executive officer of Pacific Investment Management Co., has said the loss of consumer confidence caused by the financial crisis will lower the potential growth rate to 2 percent from more than 2.5 percent and raise long-term unemployment in what he called the “new normal” for the world’s largest economy.
Business Investment
The need to rebuild industrial capacity after the largest decline on record in 2009 may spur hiring further as companies including Texas Instruments Inc. invest in machinery and equipment to meet growing demand.
Dallas-based Texas Instruments is hiring 250 workers to open a new chip-manufacturing plant in Richardson, Texas, that will eventually employ 1,000. It’s also expanding three other plants in the state.
Factory payrolls increased 11,000 in January, the biggest gain since April 2006, after falling 23,000 in the prior month. The median forecast by economists called for a drop of 20,000.
Government Workers
Government payrolls decreased by 8,000 in January, today’s report showed. State and local governments reduced employment by 41,000, while the federal government added 33,000. The increase at the federal level reflected in part the hiring of temporary workers to conduct the 2010 census.
Payrolls at builders fell 75,000 last month after decreasing 32,000. Financial firms reduced payrolls by 16,000, after a 7,000 decline. Service industries, which include banks, insurance companies, restaurants and retailers, added 40,000 workers after subtracting 96,000 in December.
Retail payrolls increased by 42,000 after an 18,000 decline.
The number of temporary workers increased 52,000 in January. Payrolls at temporary-help agencies often turn up before total employment because companies prefer to see a steady increase in demand before taking on permanent staff.
The so-called underemployment rate -- which includes part- time workers who’d prefer a full-time position and people who want work but have given up looking -- fell to 16.5 percent from 17.3 percent.
December Revision
Employment declined a revised 150,000 in December and increased 64,000 a month earlier. The revisions subtracted 5,000 from payroll figures previously reported for those two months.
The Labor Department today issued the annual benchmark update showing the economy lost 930,000 more jobs than previously estimated in the 12 months ended March 2009.
The department for the first time issued data on earnings and hours for all workers. Before today, the figures reflected changes only for production staff.
The average workweek for all workers rose to 33.9 hours in January from 33.8 the prior month. The increase signals companies are turning more part-time workers into full-time employees. Average weekly earnings increased to $761.06 from $757.46.
Some companies are still trimming payrolls. Warren Buffett’s Berkshire Hathaway Inc. cut about 3,000 jobs since December after customers scaled back orders for building-related materials.
“If you look at our carpet business, our brick business, our insulation business, all of those businesses have had significant reductions in employment,” Buffett said in an interview in Omaha, Nebraska, on Jan. 20. “The day the orders come in, we hire back. But there’s no reason to hire people if they don’t have anything to do.”
--With assistance from Rochelle Garner in San Francisco and Andrew Frye in New York. Editors: Christopher Wellisz, Carlos Torres
To contact the reporter on this story: Timothy R. Homan in Washington at +1-202-624-1961 or thoman1@bloomberg.net
To contact the editor responsible for this story: Christopher Wellisz at +1-202-624-1862 or cwellisz@bloomberg.net
The US government has announced that the country's unemployment rate dropped to 9.7% in January, from 10%.

A survey of households reported that the number of employed US residents rose by 541,000 last month; at the same time, however, employers cut 20,000 jobs.

According to the figures, the retail sector gained 42,100 jobs last month, the largest increase since November 2007; manufacturers' job counts increased by 11,000, the biggest gain since April 2006.

Temporary help, meanwhile, gained 52,000 jobs. The Press Association reports that could be an indication more hiring is on the way, saying that employers generally hire temporary staff before more permanent workers.

Carl Riccadonna, a senior US economist for Deutsche Bank Securities Inc. in New York, commented: "Companies just can’t meet demand requirements with their existing labor force, so they have to increase the number of workers. This report does seem to indicate the economy is moving in the right direction."