U.S. Payrolls Grow but Fall Short of a Boom Pace

American employers expanded their payrolls by 112,000 jobs in January, the largest monthly addition in three years but still below what many economists predicted.

The weaker-than-expected showing put off for at least another month a clear sign that employment growth has begun to follow economic growth. The economy has expanded at a powerful 6% clip since the middle of last year while jobs have barely managed a 1% gain.

Economists had expected a net increase of at least 150,000 jobs last month, better than the revised gain of 16,000 jobs in December but still well below the 250,000 average monthly growth in the boom years of 1993-99.

Friday’s report from the Labor Department ratchets up election-year pressure on President Bush, who has staked his reputation as an economic manager on a series of tax cuts that he says are reviving both jobs and growth. And they embolden Democratic challengers to renew claims that Bush has the worst jobs record of any president since Herbert Hoover.

However, investors saw something positive in the report: It reduces pressure on the Federal Reserve to increase interest rates anytime soon.

That helped push stock prices higher, while interest rates set by the bond market declined.

Speaking in Virginia, Bush cited the January jobs numbers as evidence “things are getting better.”

“There is more to do, but this economy is growing in strength, and I’m obviously pleased with that,” Bush told his audience.

Democratic presidential hopeful Sen. John Edwards of North Carolina, campaigning in Virginia, retorted that Bush’s economic policy “is great for corporate bottom lines, but it is bad for our workers.”

The January jobs report showed the nation’s unemployment rate dropped to a two-year-plus low of 5.6% last month, from 5.7% in December. But analysts said that was largely the result of statistical adjustments that tend to be applied more heavily than usual to smooth out the effects of Christmas holiday hiring.

The report suggested that the recent burst of economic growth and rising factory orders have done little to staunch the loss of U.S. manufacturing jobs, which fell by an additional 11,000 in January, the 42nd straight month of decline.

Economists cautioned that the latest job figures are harder than most to interpret because of the heavy dose of seasonal adjustment and because the Labor Department moved up to January a series of annual corrections it usually makes in June.

But for every encouraging sign in the latest numbers, there appeared to be an offsetting disappointment.

Perhaps the most important involved the large and growing disparity between the two major surveys that the government relies on to gauge the labor market.

The government’s monthly survey of about 60,000 households suggests the economy has added more than 2.3 million jobs since the official November 2001 end of the recession. By contrast, its much larger survey of about 400,000 business establishments -- the one that is considered the official job tally -- indicates that the economy has lost more than 700,000 jobs.

Administration officials, such as Treasury Secretary John Snow and National Economic Council Director Stephen Friedman, have argued for months that the smaller, household survey was giving the more accurate picture of the labor market. They have suggested that when the Labor Department got around to correcting its establishment survey results, they would show job gains instead of losses.

But the latest job numbers include corrections of the establishment survey results through March of last year, and they show that the economy lost 163,000 more jobs than previously thought.

“The numbers assure that this will go down as the most anemic job-market recovery in modern history,” said David A. Rosenberg, chief North American economist for Merrill Lynch & Co. in New York.

Many details of the January numbers were equally disquieting. Fully 76,000 of the 112,000 jobs added during the month were in retailing. But a wide array of economists said that sudden jump was almost certainly the result of a flaw in the Labor Department’s seasonal adjustment methods.

They said a better way to gauge retail employment is to look at a three-month average of hiring; that suggests retail job growth of only 3,000.

Temporary-help employment, which many treat as a leading indicator of broader job growth and which had been on the rise for eight months, fell by 21,400 in January.

Payrolls in the computer and electronics industry, which analysts say should be among the first to profit from a revival of business investment spending, were essentially flat.

On the plus side, construction employment expanded by 24,000 jobs last month while health and education payrolls grew a similar 22,000. And both the average workweek and the manufacturing workweek increased, which economists took as evidence that employers intended to keep their current employees busy.

Average hourly earnings of production and nonsupervisory workers, who make up about two-thirds of the nation’s workforce, rose 2 cents to $15.49. Average weekly earnings edged up 0.7% to $522.01. Over the last year, average weekly earnings have risen 1.7%, or slightly less than inflation.

There were continuing signs of economic stress among the unemployed, as the fraction of the jobless out for six months or more rose half a point to 22.7%, and the average duration of a jobless spell reached 19.8 weeks.

Among blacks, the unemployment rate rose to 10.5% from 10.3% in December. The jobless rate for Latinos increased to 7.3% from 6.6%. The rate for whites fell to 4.9% from 5%.

The growing ranks of the long-term unemployed and the rise in the ranks for traditionally disadvantaged groups could boost pressure on the president and the Republican-led Congress to revive a program to provide 13 extra weeks of unemployment compensation beyond the 26 weeks of regular, state-provided benefits. Bush and GOP leaders allowed the program to expire in late December.

The stock and bond markets took the latest jobs news in stride.

The Dow Jones industrial average gained 97.48 points, or 0.9%, to 10,593.03. Other major market indexes posted even bigger gains. Meanwhile, the price of a 10-year U.S. Treasury note rose, driving its yield down to 4.09% from 4.17%.

Analysts said investors reacted favorably because the weaker-than-expected job growth pushes off the day when wages and prices begin to rise again. That could prompt the Fed to raise interest rates to protect against inflation.

Fed policymakers sent a shiver through investors last week when they issued a policy statement that many interpreted as a signal that the central bank may be preparing to raise its short-term interest rate from a 45-year low of 1%.

The January job increase was the largest since the 124,000 gain in December 2000.

Times staff writers Maura Reynolds in Washington and Scott Martelle in Virginia contributed to this report.