Feb. 5 (Bloomberg) -- The unemployment rate in the U.S. unexpectedly declined in January to 9.7 percent, the lowest level since August, while payrolls dropped as companies boosted worker hours and overtime instead of taking on new hires. Payrolls fell 20,000 last month, reflecting a plunge in construction employment and a drop in state and local government hiring, figures from the Labor Department in Washington showed today. The factory workweek and overtime hours both increased.
Companies like Cisco Systems Inc. plan to add staff as businesses update equipment and stimulus plans revive sales worldwide. The economy may be slow to overcome the 8.4 million jobs lost over the last two years, explaining why President Barack Obama has made employment a top priority and the Federal Reserve has pledged to keep interest rates low.
“Businesses have to react to a pickup in demand,” Ellen Zentner, a senior economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York, said before the report. “They’re running on payrolls that are so lean that they have to react pretty quickly and start hiring, especially if they want profits growth to continue.”
Payrolls were forecast to increase by 15,000, according to the median estimate of 85 economists surveyed by Bloomberg News. Estimates ranged from a decrease of 100,000 to a gain of 100,000. The jobless rate fell from 10 percent in December. It was projected to hold there. Forecasts ranged from 9.8 percent to 10.3 percent.
In early 2009, the Obama administration’s economic advisers forecast the $787 billion stimulus plan would keep unemployment below 8 percent.
Employment declined a revised 150,000 in December and increased 64,000 a month earlier. The revisions subtracted 5,000 from payroll figures previously reported for those two months.
Government Payrolls
Government payrolls decreased by 8,000 in January. State and local governments reduced employment by 41,000 during the month, while the federal government added 33,000. The increase at the federal level reflected in part the hiring of temporary workers to conduct the 2010 census.
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.
With this report, 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.
Average Hours Worked
The average work week for all workers rose to 33.9 hours in January from 33.8 hours the prior month. The increase signals companies making more part-time workers full-time employees. The number of part-time workers for economic reasons dropped to 8.3 million in January from 9.2 million the previous month.
Average weekly earnings increased to $761.06 from $757.46.
Factory payrolls increased 11,000 in January, the biggest gain since April 2006, after falling 23,000 in the prior month. The median forecast by economists called for a drop of 20,000.
Cisco, the biggest maker of networking equipment, predicted accelerating sales growth and said it will hire 2,000 to 3,000 people in the next several quarters as customers resume spending to deal with surging data traffic.
“While we believe the recovery is now occurring, no one knows for sure how strong it will be, how long it will last or the extent of new-job creation,” Chief Executive John Chambers said on a conference call this week.
Construction Employment
Payrolls at builders fell 75,000 last month after decreasing 32,000. Financial firms reduced payrolls by 16,000, F after a 7,000 decline the prior month.
Service industries, which include banks, insurance companies, restaurants and retailers, added 40,000 workers after subtracting 96,000 in December.
The number of temporary workers increased 52,000 in January. Payrolls at temporary-help agencies often turn up before total employment because companies prefer to see a steady increase in demand before taking on permanent staff.
Retail payrolls increased by 42,000 after an 18,000 decline.
The so-called underemployment rate -- which includes part- time workers who’d prefer a full-time position and people who want work but have given up looking -- fell to 16.5 percent from 17.3 percent.
The economy grew at a 5.7 percent annual rate in the fourth quarter, the biggest gain in six years, according to data from the Commerce Department released last week.
Unemployment Forecast
Economists surveyed by Bloomberg last month projected the jobless rate will average 10 percent this year.
Some companies are still trimming payrolls. Warren Buffett’s Berkshire Hathaway Inc. cut about 3,000 jobs since December after customers scaled back orders for building-related materials.
“If you look at our carpet business, our brick business, our insulation business, all of those businesses have had significant reductions in employment,” Buffett said in an
interview in Omaha, Nebraska, on Jan. 20. “The day the orders come in, we hire back. But there’s no reason to hire people if they don’t have anything to do.”
