January payrolls fall by 20,000, slightly worse than expected. Employers boosted work hours instead of hiring
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By Timothy R. Homan
(Bloomberg) — The unemployment rate in the U.S. unexpectedly declined in January to 9.7 percent, the lowest level since August, while payrolls dropped as companies boosted worker hours and overtime instead of taking on new hires.
Companies such as Cisco Systems Inc. plan to add staff as businesses update equipment and stimulus plans revive sales worldwide. The economy may be slow to overcome the 8.4 million jobs lost over the last two years, explaining why President Barack Obama has made employment a top priority and the Federal Reserve has pledged to keep interest rates low.
"The labor market, six months after the economy turned positive, is beginning to find its bottom," said Neal Soss, chief economist at Credit Suisse in New York, who forecast a payroll drop of 25,000. "We're still teetering on the cusp of job growth."
Stocks declined as concern European governments will struggle to fund deficits overshadowed the decline in U.S. unemployment. The Standard & Poor's 500 Index dropped 0.6 percent to 1,056.65 at 10:08 a.m. in New York. The Dow Jones Industrial Average lost 59.32 points, or 0.6 percent, to 9,942.86. The dollar gained and Treasuries fluctuated.
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 labor force, up to 64.7 percent in January from 64.6 percent.
In early 2009, the Obama administration's economic advisers forecast the $787 billion stimulus plan would keep unemployment below 8 percent.
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.
Government payrolls decreased by 8,000 in January. State and local governments reduced employment by 41,000 during the month, 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.
The Labor Department today also issued the annual benchmark update showing the economy lost 930,000 more jobs than previously estimated in the 12 months ended March 2009.
With this report, the Labor Department for the first time issued data on earnings and hours for all workers. Before today, the figures reflected changes in earnings and hours for production staff.
The average work week for all workers rose to 33.9 hours in January from 33.8 hours the prior month. The increase signals companies making more part-time workers full-time employees. The number of part-time workers for economic reasons dropped to 8.3 million in January from 9.2 million the previous month.
Average weekly earnings increased to $761.06 from $757.46.
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.
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 as customers resume spending to deal with surging data traffic.
"While we believe the recovery is now occurring, no one knows for sure how strong it will be, how long it will last or the extent of new-job creation," Chief Executive John Chambers said on a conference call this week.
Payrolls at builders fell 75,000 last month after decreasing 32,000. Financial firms reduced payrolls by 16,000, after a 7,000 decline the prior month.
Service industries, which include banks, insurance companies, restaurants and retailers, added 40,000 workers after subtracting 96,000 in December.
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.
Retail payrolls increased by 42,000 after an 18,000 decline.
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.
The economy grew at a 5.7 percent annual rate in the fourth quarter, the biggest gain in six years, according to data from the Commerce Department released last week.
Economists surveyed by Bloomberg last month projected the jobless rate will average 10 percent this year.
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: Carlos Torres, Vince Golle