U.S. Jobless Rate Falls

The nation's unemployment rate dropped to 5.6 percent in January to the lowest level in more than two years as companies added 112,000 new jobs, providing fresh signs the prolonged hiring slump may be ending.

The jobless rate fell 0.1 percentage point last month to the lowest level since October 2001, when it was 5.4 percent, the Labor Department said Friday. January's rate matched the 5.6 percent posted in January 2002.

Employers added new jobs last month at a pace not seen in three years. The last time payrolls expanded more than 112,000 was in December 2000, when companies added 124,000 positions.

January's hiring gains marked the fifth straight month of increases, and followed a revised 16,000 new jobs added in December, better than the 1,000 initially reported.

Hiring by retailers and construction companies accounted for much of the overall increase in payrolls. However, the nation's factories continued shedding jobs, though at a slower pace than in previous months.

The report provided hope that the economic recovery was finally reaching the labor market. But economists still had concerns.

Economists were looking for payroll gains of about 167,000, according to a survey conducted by CBS MarketWatch.

"It is not disastrous news, but it is definitely disappointing," said Bill Cheney, chief economist at John Hancock Financial Services.

Added Ken Mayland, president of ClearView Economics: "This economy under normal circumstances should be generating 200,000 to 300,000 a month" in new jobs.

"The economy is having difficulty creating jobs right now," said Steve Stanley, chief economist for RBS Greenwich Capital. "This report was not as devastating as December's but I am just as disturbed, because I am less inclined to write off a second straight disappointment as an aberration."

"The U.S. employment report remained pathetic," said Sherry Cooper, chief economist for BMO Nesbitt Burns. "There is no reason in this report for the Fed to get interested in near-term tightening."

"Nothing in this report changes our view that the Fed will remain on hold until 2005," said Drew Matus, an economist for Lehman Brothers.

Job growth is expected to be a key issue as November's presidential election nears, and President Bush could be vulnerable. The economy has lost more than 2 million jobs since he took office, giving him the worst job creation record of any president since Herbert Hoover.

Analysts are looking for monthly payroll gains of 300,000 or more for sustained job growth, and the economy remains far from that mark.

Businesses are being squeezed by intense competition from other countries, and are holding down costs by not hiring in the United States. Instead, they are working their existing employees harder, hiring temporary workers or shipping jobs overseas.

About 8.3 million people remained unemployed in the United States last month.

But January's unemployment rate still dropped despite an increase in the labor force. More than 420,000 workers jumped back in to the job hunt, expanding the pool of available workers.

Construction companies helped boost overall hiring gains, adding 24,000 new jobs last month. Buoyed by continued strength in the housing market, the sector has added 147,000 positions to its payrolls since last March.

In the service sector, where most of the job growth is taking place, retailers added 76,000 new jobs. Garden supply and home building material stores were particularly strong, also reflecting a strong housing market.