Unemployment rate falls to 5.6 percent in January; 1 million jobseekers give up

By Leigh Strope

Associated Press

WASHINGTON – The nation’s unemployment rate unexpectedly dropped to 5.6 percent in January, but the improvement came because nearly 1 million disappointed jobseekers stopped looking for work.

While there have been growing signs of late that the nation’s first recession in a decade is ending, analysts cautioned that the jobless rate will resume rising in the months ahead until the recovery takes a firm hold.

The Labor Department report Friday showed that the 0.2 percentage point drop in the unemployment rate occurred not because employment went up but because 924,000 job seekers gave up looking for work.

That caused the government’s official unemployment figure, which counts only those actively looking for jobs, to fall to 7.9 million in January.

There were signs the worst of the layoffs that blasted the economy after the Sept. 11 terrorist attacks were drawing to a close. A separate survey of businesses showed they trimmed their payrolls by just 89,000 in January, a big improvement from the 311,000 average cuts that occurred in October, November and December.

President Bush, who is still pressing Congress for an economic stimulus plan to revive the economy, reacted with caution to Friday’s jobless report. “There are some positive numbers but not enough positive numbers to satisfy me,” he told reporters.

Private economists predicted the small improvement will be temporary.

“This morning’s employment report is considerably weaker than the headline-grabbing decline in the unemployment rate suggests,” said Wachovia Securities economist Mark Vitner. “Many jobseekers are giving up or at least postponing their job search until economic conditions improve.”

Economists had been predicting the unemployment rate would tick up from December’s 5.8 percent rate.

In the business survey, employment gains in retailing and air transportation helped to partially offset job losses in other industries.

Analysts say the nearly yearlong recession, which started in March, could be ending. The government reported this week that the U.S. economy managed to eke out a 0.2 percent increase in growth in the final three months of the year, bolstering hopes of recovery.

The battered manufacturing sector appears ready to emerge from a 17-month slump. The Institute for Supply Management said Friday its index of business activity rose to 49.9 in January from 48.1 the month before. An index above 50 indicates manufacturing growth.

Another report confirmed that construction remains strong. The Commerce Department said construction activity edged up 0.2 percent in December, with much of the strength coming from spending on condominiums, apartments and other multifamily housing, which rose a strong 5 percent. Single-family home construction slipped.

Spending on big government projects and commercial construction, such as offices and motels, by private builders dipped last month.

For all of 2001, construction spending rose 5.8 percent, following a 6.8 percent increase in 2000. While last year’s performance marked the weakest for builders since 1995, it was still considered solid for a recession period.

Stocks were falling Friday after two days of gains. In late morning trading, the Dow Jones industrial average was down 22 points.

Retailing posted a seasonally adjusted gain of 62,000 jobs in January following losses of 241,000 in the last five months of 2001. Holiday hiring in department and apparel stores and other shops had been very light, so there were fewer layoffs than usual in January, resulting in employment gains.

The nation’s housing market has continued to flourish despite the economic downturn. But poor weather in January caused construction firms to cut 54,000 jobs. But employment in finance, insurance and real estate edged up by 9,000 as low interest rates continued to entice home buyers.

Air transportation actually grew by 8,000 jobs as the very light holiday hiring in air freight resulted in fewer layoffs than usual. Employment related to commercial airlines continued to fall, however.

The manufacturing industry also kept shedding jobs in January, though the loss of 89,000 was the slowest decline since September. The largest declines were in transportation equipment as motor vehicle plants had temporary shutdowns and aircraft factories also continued to cut jobs.

Fourth-quarter growth in the nation’s economy and other signs of recovery persuaded the Federal Reserve to halt its yearlong campaign to lower interest rates. The Fed cut short-term rates 11 times last year in an effort to encourage consumer and business borrowing to jump-start the weak economy.

But the job market will be slowest to recover, and analysts think the unemployment rate, which hit a six-year high in December before last month’s drop, probably will continue to rise into the summer to as high as 6.5 percent. That’s because the level of job growth in the early stages of the recovery will not be enough to accommodate new workers as they enter the job market.