* Nonfarm payrolls rise 113,000 in January
* December payrolls gain revised up slightly to 75,000
* Unemployment rate falls to 6.6 percent from 6.7 percent
* Average hourly earnings up, work week steady
By Lucia Mutikani
WASHINGTON, Feb 7 U.S. job creation slowed
sharply over the past two months, turning in the weakest
performance in three years and raising the prospect that the
economy may be losing momentum.
At the same time, however, the unemployment rate hit a new
five-year low of 6.6 percent in January even as Americans piled
back into the labor market to search for work.
The Jekyll and Hyde report from the Labor Department on
Friday whipsawed U.S. markets in early trade. Many economists
cautioned against reading too much into it given the extreme
weather that has hit much of the nation this winter.
"It supports the view that momentum is slowing in the first
quarter, but it's too early to draw conclusions and we should
not be too pessimistic either," said Thomas Costerg, a U.S.
economist at Standard Chartered Bank in New York.
Nonfarm payrolls rose only 113,000 last month after a meager
75,000 gain in December, the report showed. Economists had
expected payrolls to rise 185,000 in January and had looked for
a big upward revision to December.
Instead, December's figure was revised upward by just 1,000,
although November's count was raised by 33,000 to 274,000, the
biggest gain since February.
Taken together, job growth averaged just 94,000 in December
and January, a big slowdown from the 204,000 average for the
first 11 months of last year.
While weather was believed to have weighed on hiring in
December, it did not appear to be a major factor last month.
There were strong gains in the weather-sensitive
construction sector, and while a survey of households found
262,000 Americans were unable to work due to the weather, the
department said that was in line with historical trends.
The second straight month of weak hiring - marked by
declines in retail, utilities, government, and education and
health employment - could be a problem for the Federal Reserve,
which is scaling back its monthly bond-buying stimulus program.
However, its next policy-setting meeting is not until March
18-19. By then, the economic clouds may have cleared.
Most economists stuck to predictions that the central bank
would cut its monthly purchase pace by another $10 billion in
March, as it did last month and the month before.
"We don't think the January report is enough by itself to
stop the Fed from tapering again," said Julia Coronado, chief
North America economist at BNP Paribas.
She said, however, that if hiring in February also proves
weak and equity markets decline, the Fed was likely to show
"more patience" in tapering its stimulus.
The drop in the jobless rate left it flirting with the 6.5
percent level that the Fed has said would trigger discussions
over when to raise benchmark interest rates from near zero.
But policymakers have made it clear that rates will not rise
any time soon even if the unemployment threshold is breached,
and they seem certain to revisit their guidance on policy.
U.S. stock futures dropped sharply when the data was
released, but the market opened higher and major indexes closed
with gains of more than 1 percent.
Similarly, money flooded into the safety of the bond market
but the flow soon ebbed, leaving bond prices up but not as
sharply. The dollar sold off against the euro, but that trade
also later eased.
The economy grew at a robust 3.7 percent annual rate in the
second half of 2013, buoying hopes that it was kicking into a
higher gear after a slow recovery from the 2007-2009 recession.
But that optimism is now being tested. A report on Monday
showed a surprise drop in factory activity to an eight-month low
in January and automakers have reported slower sales.
The tenth of a percentage point drop in the jobless rate in
January, which took it to the lowest level since October 2008,
provided a silver lining in the employment report, and kept
hopes of stronger growth alive.
Unlike the poll of employers used to calculate the payrolls
figures, the household survey from which the jobless rate is
derived found more than 600,000 jobs were created in January.
The rise in the number of people in the labor market last
month also provided an encouraging sign. The participation rate,
or the proportion of working-age Americans who have a job or are
looking for one, increased to 63 percent. In December it stood
at 62.8 percent, the more than 35-year low it hit in October.
While a decline in participation over the last year played a
role in the 1.3 percentage point drop in the jobless rate since
January 2013, rising employment has also been a big contributor.
In another bright sign, a broad gauge of the labor market's
health - the percentage of working-age Americans with a job -
rose to 58.8 percent last month, the highest since October 2012.
In addition, a measure of underemployment that includes
people who want a job but who have given up searching and those
working part time because they cannot find full-time jobs
dropped to 12.7 percent, its lowest level since November 2008.
The report also showed that the long-term unemployed were
finding jobs. The duration of unemployment fell to 35.4 weeks
last month, the lowest in a year.
"We suspect the labor market recovery is healthier than the
headline numbers imply," said Scott Anderson, chief economist at
Bank of the West in San Francisco.
WHERE THE JOBS ARE
The private sector accounted for all the hiring in January.
Government payrolls fell 29,000. It was their largest
decline since October 2012 and reflected losses on all levels of
government, including the Postal Service.
Manufacturing employment increased 21,000, a sixth
consecutive monthly gain.
Retail sector jobs fell 12,900 after strong increases in the
prior months. It was the first drop since March and was
concentrated in the sporting goods, hobby, book and music store
area, where payrolls fell 22,300.
Construction payrolls bounced back 48,000, with residential
construction accounting for the bulk of the gains, after a
decrease of 22,000 in December that was pinned on the weather.
January's gain was the largest since March 2007.
Average hourly earnings rose five cents. The length of the
workweek was steady at an average of 34.4 hours.
Friday's report included revisions to data on payrolls, the
workweek and earnings going back to 2009. The revisions showed
369,000 more jobs were created than previously thought in the 12
months through March 2013.