US adds 57,000 jobs in January but jobless rate rises to 7.9%

US employers added 157,000 jobs in January, and hiring was stronger at the end of last year than previously thought, providing reassurance that the job market held steady even as economic growth sputtered.

The Labor Department report today showed a jump in hiring just when the economy faced the threat of deep spending cuts and tax increases from the fiscal cliff. Job gains in November were revised to 247,000 from 161,000 and in December to 196,000 from 151,000.

The mostly upbeat report included one negative sign: The unemployment rate rose to 7.9 per cent from 7.8 per cent in December, mostly because some unemployed Americans gave up the search for work because of weak job prospects.

The rate is calculated from a survey of households, and more people in that survey said they were unemployed. The job gains are derived from a separate survey of employers.

The hiring picture over the past two years also looked better after the department's annual revisions. The revisions showed that employers added an average of roughly 180,000 jobs a month in 2012 and 2011, up from previous estimates of about 150,000. Economists say employment gains of at least 250,000 a month over a sustained period are needed.

Stock futures rose after the report was released.

"The significantly stronger payroll gains tell us the economy has a lot more momentum than what we had thought," Joseph LaVorgna, chief US economist at Deutsche Bank, said in a research note.

The notable change in the job market is the stronger contribution from construction companies. They added 28,000 jobs in January and nearly 100,000 in the past four months. The gains are consistent with a rebound in home construction and a broader recovery in housing.

Retailers added 33,000 positions in January and health care gained 23,000 jobs. Manufacturers posted a small increase of 4,000. Restaurants and hotels added 17,000.

Average hourly wages rose 4 cents to $23.78, the department said, and have increased 2.1 per cent in the past 12 months. That's slightly above the inflation rate, which was 1.7 per cent.

Last month's hiring should cushion the impact of the higher Social Security taxes that most consumers are paying this year. And it would help the economy resume growing after it shrank at an annual rate of 0.1 percent in the October-December quarter.

Higher Social Security taxes are reducing take-home pay for most Americans. A person earning $50,000 a year will have about $1,000 less to spend in 2013. A household with two high-paid workers will have up to $4,500 less. Taxes rose after a 2 per cent cut, in place for two years, expired 1 January.

Analysts expect the Social Security tax increase to shave about a half-point off economic growth in 2013, since consumers drive about 70 per cent of economic activity.

The hit to consumers is coming at a precarious moment for the economy. It contracted in the fourth quarter for the first time in 3 years. The decline was driven largely by a steep cut in defence spending and a drop in exports. Analysts generally think those factors will prove temporary and that the economy will resume growing.

Still, the contraction last quarter points to what are likely to be key challenges for the economy this year: the prospect of sharp government spending cuts and uncertainty over whether Congress will agree to raise the federal borrowing cap.

Most analysts predict that the economy will grow again in the January-March quarter, though likely at a lackluster annual rate of around 1 per cent. They expect the economy to expand about 2 per cent for the full year.

Two key drivers of growth improved last quarter: Consumer spending increased at a faster pace. And businesses invested more in equipment and software.

In addition, homebuilders are stepping up construction to meet rising demand. That could generate even more construction jobs.

And home prices are rising steadily. That tends to make Americans feel wealthier and more likely to spend. Housing could add as much as 1 percentage point to economic growth this year, some economists estimate.

Auto sales reached their highest level in five years in 2012 and are expected to keep growing this year. That's boosting production and hiring at US automakers and their suppliers.

AP