US jobless rate near three-year low

Fri, Feb 3, 2012, 00:00

The US economy created jobs at the fastest pace in nine months in January and the unemployment rate dropped to a near three-year low of 8.3 per cent, providing some measure of comfort for US president Barack Obama who faces re-election in November.

Nonfarm payrolls jumped 243,000, the Labor Department said, as factory jobs grew by the most in a year. The gain in overall employment was the largest since April and outpaced economists' expectations for a rise of only 150,000.

The report pointed to underlying strength in the economy, despite expectations that growth will slow in the first quarter.

Economists had expected the jobless rate to hold steady at 8.5 per cent. The rate is the lowest since February 2009 and has dropped 0.8 percentage point since August.

The decline last month reflected large gains in employment in the separate household survey from which the unemployment rate is derived.

US Treasury debt prices fell sharply on the report, while stock index futures surged. The dollar rose against the yen.

The continued labour market improvement could be a relief for Mr Obama who faces a tough re-election.

The report contrasted with a glummer assessment of the economy's prospects offered by the Federal Reserve last week and it could lessen chances of the central bank launching another round of asset purchases to spur a stronger recovery.

Chairman Ben Bernanke said the Fed was mulling further purchases to speed up the recovery. It has already bought $2.3 trillion in bonds to keep rates low and spur the economy.

"Certainly the Fed will welcome it but they remain worried about other areas of the economy, namely housing. This should not change its view on the economy," said Andrew Wilkinson, chief economic strategist at Miller Tabak and Co in New York.

The US central bank said it would probably hold interest rates near zero at least through 2014, citing still-high unemployment.

Job gains last month were widespread, with even the transportation and warehousing sector increasing payrolls.

The tenor of the report was further strengthened by revisions to November and December payrolls data, which showed 60,000 more jobs created than previously reported.

In addition, average hourly earnings rose four cents, which should help to support spending. The report suggested that expectations of a slowdown in US economic growth in the first quarter were not yet impacting on companies' hiring decisions.

Employment in the private sector surged 257,000 - the largest gain since April. Government payrolls fell 14,000, the least amount since September.

The US economy grew at a 2.8 per cent annual rate in the final three months of 2011, quickening from 1.8 per cent in the third quarter. However, the rebuilding of stocks by businesses accounted for two-thirds of the rise, setting the economy up for a slower growth pace this quarter.

Growth is also seen moderating as the European debt crisis, which has already pushed some economies in the region into recession, takes an edge off US exports.