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Jobless rate slides
Rate dips to 5.7%, payrolls grow at fastest rate in two years, but analysts express caution.
February 7, 2003: 11:41 AM EST

NEW YORK (CNN/Money) - The U.S. unemployment rate dropped and employers added 143,000 jobs to payrolls -- the biggest number in more than two years -- the government said Friday, better news for the labor market than economists expected.

The Labor Department said 5.7 percent of the nation's labor force was unemployed in January, down from 6 percent in December. The job growth was the biggest since 199,000 in November 2000 and followed a revised loss of 156,000 jobs outside the farm sector in December.

Economists, on average, had expected 6 percent unemployment and 69,000 new jobs, according to

"This decline [in the jobless rate] is certainly the largest drop we've seen in recent months, so it does suggest a stronger labor market than we expected," Jared Bernstein, labor economist with the Economic Policy Institute, told CNNfn's CNNmoney Morning program.

Bernstein and other economists noted, however, that the strength in the payroll figure was due largely to seasonal adjustments. The department adjusted December's payroll number to account for an expected surge of retail hiring for the holidays. Similarly, the department adjusted January's figures to account for an expected wave of retail firing.

Since fewer retail employees were hired in December than expected, fewer were fired, so December's payroll figure looked worse than it really was, and January's number probably paints an overly rosy picture of the labor market.

"A typical post-war employment recovery would be more vigorous than what we're seeing now," White House economic adviser Glenn Hubbard said, according to a Reuters report. "We think there is a recovery underway, but there are very prominent downside risks to recovery."

U.S. stock prices rose in early trading, but turned lower as the morning progressed. Treasury bond prices were mostly lower.

Click here for more on the labor market outlook

The U.S. labor market has been weak for more than two years. The manufacturing sector started cutting jobs late in the year 2000, and the rest of the economy followed suit after a recession began in March 2001, with the pace of layoffs accelerating after the Sept. 11 terror attacks.

The job market stabilized for a while in 2002, but stock market weakness, concerns about the possibility of a U.S.-led war in Iraq and other worries led to a new slowdown in economic activity and another round of layoffs.

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The U.S. unemployment rate dropped to 5.7 percent in January, down from 6 percent in December. Labor Secretary Elaine Chao comments on the unemployment rate and the economy.

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The vast majority of January payroll growth came from the retail sector, according to Friday's Labor Department report. The sector added 101,000 jobs following December's loss of 99,000.

The manufacturing sector, which has shed jobs every month since August 2000, lost 16,000 jobs in January -- the lowest decline since July 2002.

In a hopeful sign from Friday's report, the labor force -- the number of people either working or out of work and looking for a job -- grew by 328,000 to about 145.8 million. In seriously depressed labor markets, the labor force will sometimes shrink as discouraged workers give up their job searches and take themselves out of the labor force.

Of that work force, about 8.3 million people are unemployed, down from 8.7 million in December. The government estimated 74.1 million people are not in the labor force.

But the Labor Department also noted that, because of drastic changes to its data base to include information from the 2000 census, January's figures for the labor force, employment and unemployment aren't entirely comparable to December's figures. Though the department said these changes had little effect on the unemployment rate, economists were still taking the reported rate with a grain of salt.

"Unless we're missing something, the unemployment rate will be shooting back up again very soon," said Bill Cheney, chief economist at John Hancock Financial Services.

On a disappointing note, average wages were flat at $14.98 an hour in January. Economists expected a gain of 0.3 percent. In a weak labor market, wage growth is a critical support to consumer spending, which makes up more than two-thirds of the nation's economy.

The average workweek for non-supervisory employees rose to 34.2 hours from 34.1 in December, but manufacturing and overtime hours both edged lower.

"When we see a change in payrolls that is dominated by a glitch in the seasonal factor, no change in average hourly earnings and only a small gain in the length in the average workweek, we know that the message is encouraging but not exhilarating," said Anthony Chan, chief economist at Banc One Investment Advisors.  Top of page

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