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Unemployment Rate Drops to 5.6%

January nonfarm payrolls decreased 89,000, and the unemployment rate surprised with a decline to 5.6% from 5.8%. The workweek decreased to 34.0 from 34.1 hours, while hourly earnings were unchanged. Overall, the payroll data was in line with expectations, with much of the weakness due to another big drop in manufacturing (-89,000).

In addition, construction surprised with a 54,000 decline that may have been due to a return to more normal weather in early January relative to the mild weather in November and December (when seasonal layoffs typically occur). Recent weakness in commercial real estate may also have depressed construction this month.

But offsetting some of this weakness was a 62,000 gain in retail sales, as the tepid pace of holiday hiring seen late last year resulted in less job attrition in January relative to normal seasonal trends. Note also that the unemployment rate may have dropped to this same seasonal-related quirk, as the NSA unemployment rate still rose to 6.3%. from 5.4%.

Overall, while the report is consistent with the view that the worst news is behind us, it still suggests a weak labor market. From Standard & Poor's Global Markets

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