Hints of optimism in weak jobs report

WASHINGTON — A second straight month of weak job growth renewed concerns Friday that the vigor displayed by the American economy late last year may be gone, at least for the moment.

The Labor Department’s monthly employment report showing a tepid gain of 113,000 jobs in January followed December’s puny increase of 75,000 — far below last year’s average monthly gain of 194,000.

Yet the report provided some cause for optimism. Solid hiring last month in manufacturing and construction point to underlying strength.

And in a healthy sign, more Americans began looking for jobs, suggesting they were more hopeful about their prospects. A sizable 115,000 formerly unemployed people also said they found jobs. Their hiring reduced the unemployment rate to a seasonally adjusted 6.6 percent, the lowest in more than five years.

Most economists say they think hiring will strengthen during 2014 as the economy improves further.

Job growth “clearly has downshifted over the past two months,” said Doug Handler, chief U.S. economist at IHS Global Insight. “But we still believe the economic fundamentals remain strong and … forecast an acceleration of growth later in the year.”

Janet Yellen will be pressed about jobs and the economy when she testifies to Congress next week in her first public comments since becoming Federal Reserve chair on Feb. 1. Fed officials are scaling back their stimulus for the economy.

They’ve also said they would consider raising their benchmark short-term interest rate at some point after the rate falls below 6.5 percent.

But the Fed has not been clear about the timing. With the unemployment rate now close to that threshold, economists think the Fed may update its guidance after its next meeting in March.

Most economists say two weak hiring months won’t lead the Fed to halt its pullback on the stimulus. Fed policymakers will have February’s job report to consider when they next meet in March.

Friday’s figures add to evidence that the economy is slowing in the first few months of the year after expanding at a robust 3.7 percent annual pace in the second half of 2013.

The figures follow other signs of a possibly softening economy. A survey of manufacturing firms showed that factory expansion slowed last month. A measure of forthcoming home sales fell.

The jobs report offered some hints that hiring could return to last year’s healthier levels in coming months.

To begin with, the unemployment rate is at its lowest point since October 2008, when the financial crisis was erupting. The rate fell because many of the unemployed found work.

And the influx of people seeking jobs — a sign of optimism — was an improvement from December.

In that month, the unemployment rate fell only because about 350,000 people stopped looking for work and were no longer counted as unemployed.

Another positive sign: Manufacturers, construction firms and mines added a combined 76,000 jobs last month — the most since January 2006. Goods-producing employers like those tend to hire only when they’re confident in the economy.

“You rarely see expansions in these industries without the economy being in fairly healthy shape,” said Gary Burtless, an economist at the Brookings Institution.

Home sales and construction are rising, a trend economists expect to continue. If it does, more construction jobs would be created and would likely lead to higher retail spending as people furnish homes.

The effect of government tax increases and spending cuts, which dragged on growth last year, should sharply diminish in 2014. And despite recent turmoil in several emerging economies, the global economy appears in better shape than it has in the past three years, when Europe’s financial crisis threatened U.S. growth.

“There’s nothing really holding growth back,” said Paul Ashworth, an economist at Capital Economics. Most economists expect the U.S. economy to expand 2.5 percent to 3 percent this year, up from 1.9 percent in 2013.

Several industries shed jobs last month, but the losses were likely to be temporary. Retailers cut nearly 13,000 jobs, but that followed three months of huge gains.

And government jobs dropped by 29,000. Local governments shed 11,000 jobs, partly because bus drivers and cafeteria workers were temporarily laid off when winter weather closed schools. The federal government cut 12,000, including 8,500 at the U.S. Postal Service.

Economists don’t expect such deep cuts to continue. State and local tax revenues have recovered after plunging during the Great Recession.

“The pullback in January (by governments) was a bit of a surprise,” said Patrick O’Keefe, director of economic research at CohnReznick, an accounting and consulting firm.

Investors seemed generally pleased by Friday’s figures. The Dow Jones industrial average rose 136 points in afternoon trading.

Cold weather probably held back hiring in December, but the impact seemed to fade in January. That’s likely because the government’s survey of business hiring was conducted in mid-January, in between some of the worst winter storms.

Construction firms added 48,000 jobs in January, rebounding from a steep loss of 22,000 in December that probably reflected unseasonably cold weather. Construction typically stops if it’s too cold.

Vince DeLeonardis, president of a contracting company in Pontiac, Mich., says cold weather disrupted projects in December and January. The firm, which handles construction of hospitals and factories, had to postpone brickwork last month on one job. That forced a subcontractor to lay off four masons. Some carpentry and roofing work was also delayed.

But the company has also benefited from weather-related repair jobs. DeLeonardis says it’s done work involving freezing pipes that burst.

And once the weather improves, DeLeonardis expects business to pick up. He added a project engineer this week to his 87-person staff and hopes to hire one or two more this year.

“We’re seeing private developers moving forward with projects,” DeLeonardis said, in contrast to two years ago, when little except nonprofit and government-funded work was available. He also thinks better auto sales will lead to more work building and expanding auto plants.

Other firms unaffected by the weather are adding jobs. One is Agri-Industrial Plastics, based in Fairfield, Iowa, which makes fuel tanks and other parts for tractors, snowmobiles and ATVs. It sells to companies such as John Deere, Yamaha and Arctic Cat.

CEO Lori Schaefer-Weaton says she foresees healthy sales growth in 2014. The recovery in home sales and construction has created more landscaping work and boosted sales of riding lawnmowers and other equipment. Most of the company’s manufacturing customers are optimistic about sales this year.

She’s looking to add 12 new jobs to her 170-person staff. The company needs salespeople, customer-service workers and quality-control engineers.

“So far, what we’re seeing is looking good,” she said. “Hiring good people is at the top of my to-do list, every day.”

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AP Economics Writer Josh Boak contributed to this report.

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