Unemployment rate dives, but few new jobs created. How can that be?

Unemployment rate dropped from 9.4% to 9.0% last month, according new Labor Department statistics. But only 36,000 new jobs were created. Where did the rest of the unemployed go?

By , Staff writer

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    Commissioner of the Bureau of Labor Statistics Keith Hall testifies about job growth in Washington, August 2010. Many economists are scratching their heads over January's unemployment rates, released Feb. 4, which dropped 0.4 percentage points though only 36,000 new jobs were created.
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Economists are scratching their heads over the newly released monthly jobs report.

The Labor Department announced on Friday that the economy gained only a handful of new jobs in January, but the unemployment rate dropped from 9.4 percent to 9.0 percent, the lowest rate since spring 2009.

Some economists blamed the cold and snowy weather for distorting the numbers, while others suggested the drop in the unemployment rate might reflect people whose unemployment benefits have run out and who have stopped looking for work, thus no longer meeting the government's official definition of "unemployed."

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Others pointed out that the Bureau of Labor Statistics (BLS) adjusts its population figures every January, so the new percentage may just reflect that adjustment.

One economist joked that maybe aliens had kidnapped many formerly unemployed workers.

“The more you look at this report – you cannot connect the dots and make sense of it,” says Robert Brusca, an economist at Fact & Opinion Economics in New York and the economist who joked about the aliens. “We just have to wait to next month to see if that makes sense.”

According to the BLS’s survey of establishments, the economy netted only 36,000 new jobs last month, well below Wall Street’s forecast of 145,000 new positions.

“The real issue is the lack of job creation. We know corporations are watching the bottom line and are reluctant to hire new people,” says Scott Brown, chief economist at Raymond James & Associates in St. Petersburg, Fla.

This paucity of new jobs runs counter to many private surveys, such as the ADP report and the survey from the Institute for Supply Management, both indicating a strong trend to hire new workers. At the same time, the Challenger Report on January’s layoffs found the lowest level of job loss since the report was begun in 1993.

The White House ignored the apparent lack of new jobs and focused instead on the drop in the unemployment rate. “The 0.4 percentage decline in the unemployment rate to 9.0 percent in January was accounted for by a large increase in employment as measured by the household survey (which is separate from the payroll survey),” wrote Austan Goolsbee, chairman of the Council of Economic Advisers in Washington, in a press release.

The household survey sometimes picks up changes in hiring by small business and individuals beginning their own firms. “If there were better job growth by small business it could be reflected by the survey,” says Mr. Brown.

For the first time the BLS broke out the incorporated self-employed as a separate category, revealing some 5.2 million people earning money through freelance and independent contract work. In the past, the BLS counted the workers but lumped them in with all wage and salary workers.

Most economists don’t consider the household survey that important, Brown notes, because it swings widely month to month. “You will drive yourself nuts," he says.

Despite the overall disappointment with job gains, the payroll survey showed improvement in some individual sectors. Manufacturing companies added 49,000 jobs, the retail and wholesale trade hired 36,700 people, and professional and business services tacked on 31,000.

At the same time, there were job losses of 38,000 in transportation and warehousing, 32,000 in construction, and 10,000 in local government.

Temp services, which have been averaging gains of 25,000 jobs a month for the past year, actually lost 11,000 positions.

“January is notoriously hard to call in our industry,” says Roy Krause, CEO of Ft. Lauderdale-based SFN Group, one of the nation’s largest suppliers of temps. “There are a lot of seasonality issues, so I don’t find the drop surprising.”

Mr. Krause says his business has slowed down somewhat but adds, “There was an expectation it would slow since it was on a blistering pace.”

SFN’s own surveys continue to show business is confident. “From what we are seeing, the economy is getting better,” he says.

Despite that optimism, the numbers also showed some 6.2 million people have been out of work for six months or longer. And in a new measurement that has been phased in, the BLS found the average length of unemployment is nine months, an all-time high.

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