Payrolls rose less than projected in January and the jobless rate unexpectedly dropped to the lowest level in more than five years, clouding the outlook for the U.S. economy and Federal Reserve.
The 113,000 gain in hiring fell short of the 180,000 advance that was the median forecast of economists surveyed by Bloomberg and followed a 75,000 increase the prior month, Labor Department data showed today in Washington. Unemployment declined to 6.6 percent, the least since October 2008, from 6.7 percent in December.
“It’s another disappointment, but it’s not anything disastrous,” said Julia Coronado, New York-based chief economist for North America at BNP Paribas and a former Fed economist, who accurately forecast the jobless rate. “We’re still in muddle-along territory rather than take-off mode. There isn’t the kind of momentum in hiring.”
Stocks and Treasury securities rallied after the report as investors scrutinized the data to determine whether Fed policy makers will continue to trim stimulus in coming meetings. The figures represent a communications challenge for new Fed Chairman Janet Yellen as she prepares to testify before Congress next week.
The Standard & Poor’s 500 Index capped its best two-day rally since October, rising 1.3 percent to 1,797.02 at the close in New York. The yield on the benchmark 10-year Treasury note fell to 2.68 percent from 2.70 percent late yesterday.
Back-to-back gains in hiring were the weakest in three years. Retailers and government agencies cut payrolls last month by the most in more than a year, while construction firms and manufacturers boosted employment, contributing to more than half the gain.
The 48,000 rebound in construction probably reflects a bounce-back from weather-depressed readings in December and suggests inclement conditions played less of a role in limiting hiring last month.
Today’s report showed 262,000 Americans were not at work because of bad weather during the January survey week, little changed from the same period last year. The Labor Department figures last month showed the reading for December was the biggest for that month since 1977.
Shari Adams is among those looking for work after being dismissed in July 2013 from her job as a controller at a nonprofit firm.
“It’s a roller-coaster ride,” the 45-year-old from Richmond, Virginia, said. “There are definitely more opportunities” for work. “There’s also a lot of competition.”
The unemployment rate, which is derived from a Labor Department survey of households that is separate from the payroll tally, was projected to hold at 6.7 percent, according to the Bloomberg survey median.
The readings in that survey showed a hiring surge, contributing to the disconnect with the payroll data. The household measure of employment jumped by 638,000 in January and was up 1.2 percent over the past three months, the biggest gain over a similar period since 2000.
Yellen will have an opportunity to outline her views on the decline in the unemployment rate amid weak payroll gains in her testimony next week before House and Senate committees, her first public remarks since taking the helm of the central bank this week.
She will also have a chance to expand on the Fed’s plan for its target interest rate, which it’s held near zero since December 2008. The central bank had said it would probably keep that rate low “well past the time” that unemployment falls below the threshold of 6.5 percent, and Yellen will need to provide clarity now that the threshold is so close. She also will likely face questions about whether the Fed will continue to taper its monthly bond-buying by another $10 billion at its next meeting in March.
Democrats and Republicans used the report to highlight their differences on economic policy. House Majority Leader Eric Cantor, a Virginia Republican, touted proposals to boost energy production and improve access to job training.
“There remains a real crisis for the chronically unemployed in this country,” Cantor said in a statement. “Americans deserve good jobs and should not have to settle for the new normal of extended unemployment and limited prospects.”
The Obama administration and other Democrats faulted Republicans for blocking legislation to extend aid to the long-term unemployed. On a 58-40 vote yesterday, Senate lawmwakers refused to move a bill that would extend benefits that expired Dec. 28.
“Extending emergency unemployment benefits for the 1.7 million workers who lost them is critical,” Jason Furman, chairman of the White House Council of Economic Advisers, said in a written statement. “The after-effects of the recession still linger and are creating hardship for many families.”
Coby Messier, a sheet metal worker from Albuquerque, New Mexico, has been looking for work since losing his job in February 2013, and is among those who no longer get emergency benefits. His wife’s salary as a school teacher helps pay the bills and support his daughter and step-daughter.
Messier, 37, said that when he submits a resume, “it probably goes on a desk with 10 others they got that morning. You have to be positive, in hopes that something comes up or that you can make something happen for yourself, and that’s really what I’m trying to do right now.”
Today’s report showed retailers reduced payrolls by about 13,000 in January, the most since June 2012, following a combined gain of almost 127,000 over the previous three months as they geared up for the holiday season.
Department-store chains were among companies announcing workforce reductions last month after the holiday-shopping season. Macy’s Inc. said it would eliminate about 2,500 jobs and close five stores, while J.C. Penney Co. plans to cut about 2,000 positions and shutter 33 locations.
Government employment slumped 29,000 in January, the most since October 2012, as agencies at all levels -- federal, state and local -- reduced hiring.
Private employment, which excludes government agencies, rose by 142,000 in January after 89,000 the prior month. The Bloomberg survey median called for a 185,000 advance.
Among the weak spots were education and health services, where employment dropped 6,000 in January, the most since September 2004.
Employers may be depending on temporary help as they gauge the strength of the economy. Hiring at temporary-help agencies climbed by 8,100. Demand is improving for some companies, signaling employers will be encouraged to expand this year, according to staffing services provider Kelly Services Inc.
“Companies will be more confident about making stronger investment in people and capital as the outlook continues to strengthen,” Carl Camden, chief executive officer of the Troy, Michigan-based company, said on a Jan. 30 earnings call. “We’re going to see, not necessarily rock-and-roll employment growth, but a nice, steady growth.”