Jobless Rate Drops Unexpectedly to 9.7%

Last updated at 6:33 p.m. ET

The job market is lurching toward improvement. It just has a long way to go.

The outlook for jobs became a bit less bleak Friday when the government released January's unemployment rate showing an unexpected decline from 10 percent to 9.7 percent. It was the first drop in seven months.

Still, the government now estimates 8.4 million jobs vanished in the Great Recession. And economists say the nation will be lucky to get back 1.5 million of them this year. They also warn it will take until the middle of the decade for the job market to return to normal.

"Real significant job growth will occur in 2010," said Lakshman Achuthan, an economist with the Economic Cycle Research Institute told CBS News correspondent Anthony Mason. "We're right on the cusp of it. However, it's going to take years to recover what was lost."

The economy is growing, and normally job creation would be strengthening. But the job market is weighed down by employers who remain slow to hire because consumers are not spending enough. Companies worry about their prospects once government stimulus aid fades. They also fret about possibly higher costs related to taxes or health care measures from Congress and statehouses.

The unemployment rate fell to its lowest level since August because a Labor Department survey of households found a sharp rise in the number of Americans with jobs. The survey found that 541,000 more Americans had jobs last month.

But those gains resulted from seasonal adjustments to the data. Without those adjustments, the data show fewer people had jobs last month.

Such adjustments are made each month and are especially large in January because of heavy seasonal changes in hiring, including holiday-season jobs, according to Tom Nardone, an assistant commissioner at the department's Bureau of Labor Statistics.

President Barack Obama said the unexpected drop in the unemployment rate was "story= 6177719>cause for hope but not celebration." Speaking at a small business in a Washington suburb, Obama said the figures show modest progress, but he cautioned that the data will continue to fluctuate for months.

Econwatch: The Great Thaw Begins

By the White House's own forecast, the unemployment rate will average 10 percent this year, up from 9.3 percent last year, a 26-year high. By the 2012 presidential election, the jobless rate will still be elevated - averaging 8.2 percent. Normal is around 5.5 percent or 6 percent.

Left behind are people like Aimee Brittain, 31, who said she cannot get employers to return her calls. She's hunting for work as a secretary after being laid off from a commercial real estate firm near her home in suburban Atlanta.

"I'm fighting against people with master's degrees for receptionist jobs," Brittain said. "I can't compete."

Seasonal adjustments tend to have a big effect on the January data. Retailers typically lay off temporary holiday-season employees. Construction firms temporarily cut jobs due to cold weather. The data are adjusted so the figures will show underlying trends.

The department uses separate surveys of households and businesses to gauge employment. The two differed this month. Households showed a jump in employment. But businesses reported 20,000 fewer jobs.

From month to month, the household survey is more volatile than the business survey, Nardone said. In December, it reported a 589,000 drop in employment. But over time, the two surveys tend to track each other: In the past 12 months, both show a net loss of about 4 million jobs.

The prospects of high unemployment heading into this year's congressional elections are a liability for Obama's Democratic Party.

This year the monthly unemployment rate is likely to stay high - and possibly creep up - as more people who had left the work force see an improving economy and start looking for jobs again. The jobless rate includes only those who are looking for work.

"I'd be surprised to see the jobless rate heading down in a straight line from here," said Nigel Gault, economist at IHS Global Insight. "It will be a very, very tough labor market. You'll be battling with a lot of other people for the relatively small number of jobs that will be created."

Analysts say the economy is on the verge of creating jobs, though nowhere near enough to bring the jobless rate down much. Bernard Baumohl, chief global economist at the Economic Outlook Group, said the report "provides more concrete signs this economic recovery is, at last, working its way into the labor market."

Initially, most of the jobs gains will come from a burst of federal hiring of census workers. That could add up to 1.2 million jobs this year, though they will all be temporary.

Later in the year, more private companies will hire, analysts predict. But economists think job creation will remain tepid - around 125,000 jobs a month at best.

(AP/CBS)

Even with some improvements on the hiring front, 14.8 million Americans were unemployed in January. The unemployment rate for blacks reached 16.5 percent in January, the highest since 1984. And the number of people out of work six months or longer set a record of 6.3 million.

Americans' anxiety about unemployment forced Obama and Congress to pivot their attention to job creation. The Senate next week will begin work on legislation to give companies a tax break for hiring.

Counting people who have given up looking for work and part-time workers who would prefer to be working full-time, the so-called underemployment rate was 16.5 percent in January. That's down from 17.3 percent in December. Yet it still shows how hard it is to find jobs.

Some encouraging developments in the report:

- The number of part-time workers who want full-time work but cannot find it fell by nearly 1 million.

- The average workweek grew to 33.3 hours, from 33.2. That indicates employers are bumping up hours for their workers, a step that usually precedes new hiring.

- Temporary-help services added 52,000 jobs, the fourth monthly gain. That could signal future hiring, as employers usually hire temp workers before permanent ones.

- Manufacturing sector added jobs for the first time since January 2007. Its gain of 11,000 jobs was the most since April 2006.

- Retailers added 42,100 jobs, the most since November 2007, before the recession began.

"It's a slow process, but the labor market is indeed starting to turn a corner," said Joel Naroff, president of Naroff Economic Advisors.