U.S. unemployment rate dropped, but only 49K jobs added

America’s employers barely added jobs last month, underscoring the viral pandemic’s ongoing grip on the economy and likely adding momentum to the Biden administration’s push for a bold rescue aid package.

The increase of just 49,000 positions in January made scarcely any dent in the nearly 10 million jobs that remain lost since the virus intensified nearly a year ago. The tepid increase followed a decline of 227,000 jobs in December, the first loss since April.

The unemployment rate fell sharply in January from 6.7% to 6.3%, the Labor Department said Friday. Most of the drop in unemployment occurred because some people out of work found jobs, but others stopped looking for work and were no longer counted as unemployed.

Even last month’s small job gain benefited from a technical adjustment to the government’s data. And without an increase of 80,000 temporary jobs, the economy would have posted a net loss.

“What you have is a lousy report that shows a stalling recovery,” said Nela Richardson, chief economist at payroll processor ADP.

Soaring new virus infections in late fall had forced tighter business restrictions in California, New York, Virginia and other states, thereby reducing the need for workers. Consumers have also been less willing to dine out, travel or go to concert halls and other venues as the pandemic has persisted. Some business closures, notably in California, have since been eased or lifted, but in many cases too late to affect last month’s jobs data.

Economists are increasingly hopeful that as vaccinations reach a critical mass in the coming months and the government provides further stimulus, the economy and the job market will strengthen much faster than they did after previous recessions. Bank of America estimates that growth could reach 6% this year, which would be the fastest since 1984.

“The tunnel we’re in does have a light,” Richardson said. “It’s later this year when the U.S. economy is reopened, and after widespread inoculation and maybe stimulus. This is not the end of the story by any means. But it does show the recovery could use more support.”

Gregory Daco, chief U.S. economist at Oxford Economics, forecasts that 6.6 million jobs could be regained by the end of this year, though that would still leave the U.S. economy several million short of its pre-pandemic level.

Last month, service industries that deal with customers in person again posted the sharpest job losses as millions of consumers continue to hunker down at home. Within the service sector, restaurants, bars and hotels slashed 61,000 jobs. Retailers cut nearly 38,000 jobs. Employment in transportation and warehousing fell by 28,000.

Women, who have been disproportionately hurt since the job market collapsed in early spring, have been leaving the work force, often to care for children at home attending school online. That pattern continued in January. At the same time, the number of men with jobs increased last month.

As hiring has slowed, layoffs have kept mounting. The number of applications for unemployment benefits, though declining for the past few weeks, remained at an elevated 779,000 last week.

The hardships that millions of Americans are suffering have fueled President Joe Biden’s push for a US$1.9 trillion rescue aid package, which would provide US$1,400 checks for most U.S. individuals and a US$400 weekly unemployment payment on top of state benefits. The package would also extend two federal jobless aid programs, from mid-March through September, and provide funds for vaccinations and support for state and local governments.

The weak January jobs data could lend further political impetus to Biden’s package. Early Friday, the Senate approved a measure that would let Democrats muscle Biden’s US$1.9-trillion plan through the chamber without Republican support. The measure now returns to the House, where it will have to be approved before work on the aid package will begin in several congressional committees.

The damage to the job market since March has widened economic inequality in the United States, especially hurting women and people of colour. At the same time, Americans fortunate enough to have kept their jobs have amassed US$2.3 trillion in savings — double the pre-pandemic total. That enlarged pool of savings could fuel a rapid rebound in spending as business restrictions are lifted and more Americans become more confident about shopping, dining out and travelling.

Some hopeful signs have emerged recently to suggest that the economy might be picking up a bit. Auto sales rose solidly in January. And a gauge of business growth in the service sector picked up to its highest level in two years. It also showed that services firms added workers last month. A separate measure of manufacturing indicated that factories are also expanding. So is spending on home construction, as sales of existing homes actually soared last year to the highest level in 14 years.