Unemployment Rate Falls in January

Feb. 5, 2010— -- The nation's employers reduced their payrolls by 20,000 during January, a government report showed, generating fresh anxiety about a labor market that has yet to catch up with growth in the overall economy.

The reduction was slightly worse than the 15,000 jobs economists were expecting. The nation's unemployment rate -- the result of a separate but simultaneously released survey of households -- dropped to 9.7 percent from the 10-percent level of a month ago, according to the U.S. Labor Department.

The economy lost 85,000 jobs in December after gaining 4,000 in November and losing 127,000 in October.

For an interactive map of unemployment in your county, click here.

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. This means the total job losses during the recession were worse than previously thought: 8.4 million jobs lost versus 7.2 million.

"This report shows how slow the job market is to recover, as other sectors of the economy show improvement," ABC News business correspondent Betsy Stark said. "Yes, things are moving in the right direction but at a snail's pace."

Despite the mixed numbers, a growing chorus of economists and labor market analysts say the unemployment picture in the United States is actually far worse.

They argue that the Labor Department routinely undercounts the number of unemployed in this country, adding fuel to a simmering debate on whether the government is providing an accurate snapshot of the nation's unemployment picture.

"Our gripe about the numbers is that it leaves out broad swaths of unemployed people in the country," said Madeline Schnapp, director of macroeconomic research at TrimTabs, a Sausalito, Calif.-based investment research firm.

Like other economic observers, Schnapp argued that the Labor Department's methodology is flawed because it's based on surveys and polling and ignores "the real-time data available via analysis of withheld income and employment taxes."

A TrimTabs report this week estimated that the U.S. economy actually lost 104,000 jobs in January, far more than what the government report shows today.

The Department of Labor calls 60,000 households in the United States each month to determine who is employed and who is unemployed. This survey is known as the household survey.

The unemployment rate that is announced is mostly based on this survey. Anyone who works at least one hour a week is considered employed by the Labor Department.

The people collecting unemployment insurance are not counted because about only 35 percent of the unemployed are eligible for unemployment insurance in the United States.

Further complicating things: People who have stopped looking for work are technically not counted as unemployed either.

Besides the household survey, the establishment survey looks at 375,000 businesses that produce the nonfarm payrolls, average workweek and average hourly earnings figures, among others.

"If the government is saying the economy is doing better or worse than it is, then businesses are making decision on hiring and capital expenditures based on these reports," Schnapp said.

Reducing Payrolls

"This can be quite dangerous if the numbers released are not entirely accurate."

Today's report does reflect changes in the way the government is collecting jobs data. 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. And the household details issued today for the first time include breakouts for employment status of veterans, the disabled and foreign-born people.

Meantime, employers last month announced plans to reduce payrolls by 71,482 workers, according to a report this week by Challenger, Gray & Christmas, a Chicago-based outplacement consultancy.

The firm said the total is the highest job-cut tally in five months and that the surge resulted primarily from heavy downsizing in the retail and telecommunications sectors.

The January job-cut total was 59 percent higher than December 2009, when announced layoffs fell to a 24-month low of 45,094.

This is the first increase in monthly job cuts since July, according to Challenger, Gray & Christmas. It's the largest monthly total since last August, when employers announced 76,456 layoffs.

The increase in the job-cut total in January is not necessarily a sign of a recession relapse, said John A. Challenger, chief executive officer of Challenger, Gray & Christmas. He said it's not uncommon to see a surge in job-cut announcements to begin the year.

"Companies are making adjustments based on the previous year's results and the outlook for the year ahead," he said, adding that "heavy job cuts could continue in retail and other sectors through the first quarter."

Peter Morici, an economics professor at the University of Maryland's Robert H. Smith School of Business, said key sectors to watch in today's employment report are manufacturing, retail sales, and construction.

"Manufacturing is picking up steam, and more firms are adding employees than shedding them," Morici said.

"If stronger consumer confidence is translating into mall activity, retail employment, which was down 10,000, in December, should level off in January."