Unemployment Rate Ticks Up to 7.9 Percent

The Labor Department's latest figures show a moderate improvement in the labor market.

Job seekers gather for employment opportunities at the 11th annual Skid Row Career Fair at the Los Angeles Mission on Thursday, May 31, 2012, in Los Angeles.

Job seekers gather for employment opportunities at the 11th annual Skid Row Career Fair at the Los Angeles Mission on Thursday, May 31, 2012, in Los Angeles.

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American employers added 157,000 jobs in January, with the unemployment rate ticking up slightly to 7.9 percent, according to Labor Department figures released Friday. The latest jobs report is roughly in line with consensus estimates and represents a slight slowdown from December's 196,000 jobs figure.

Revisions to previous months' data were positive: December's figure was revised upward from a previously reported 155,000, and November's figure moved from 161,000 to 247,000.

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The retail industry led in job growth last month, with employers adding 32,600 new jobs. Health care and social assistance, which has been a strong-performing category throughout the recovery, also showed healthy growth, adding nearly 28,000 jobs.

The construction sector also added 28,000 jobs, while professional and business services, a category that includes a broad range of jobs such as administrative workers and lawyers, added 25,000 jobs. Meanwhile, transportation and warehousing subtracted more than 14,000 jobs and government lost 9,000 jobs.

The January figures continue a long-standing trend of slow but steady monthly job growth, but potential trouble lies ahead for the job market. Automatic sequestration cuts set for March 1 would mean the beginning of more than $1 trillion in government spending cuts, and a deal to avert those reductions could still mean deep federal spending cuts.

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Meanwhile, the end of the payroll tax cut meant that starting last month, American workers' paychecks were smaller than usual. That wage hit is being blamed for rattling consumer confidence and could hurt consumer spending for months to come. 

Those two factors together could make for disappointing jobs reports throughout the first half of 2013, says one economist. 

"The combination of both of them together and overall slow GDP growth that we've seen means that employment is probably not going to grow very fast in the next several months," says Gad Levanon, director of macroeconomic research at the Conference Board, a nonprofit business membership organization. He believes that monthly payroll job growth over the next few months will generally trend in the 100,000 to 150,000 range.

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Still, there is plenty of reason to be optimistic about job growth in the latter half of this year. While Americans digest their higher payroll taxes and uncertainty over Washington's fiscal policy choices, economic fundamentals will likely continue to strengthen. 

In particular, recent improvements in construction are a promising indicator that a recovering housing market is going to start contributing more to the broader economic recovery. Construction's 28,000 new jobs last month represented its eighth straight month of growth—an encouraging sign for an industry that is still two million jobs below where it was prior to the recession.

"The housing market is coming back. Consumer spending looks like it has the potential to accelerate, and there's this possibility that we've moved away from the deleveraging cycle." says James Marple, senior economist at TD Economics.

Levanon agrees that the economic recovery looks promising: "I think there is a good chance that by the end of 2013, the U.S. economy will start growing consistently faster than it used to in recent years. The main reason is that several of the main headwinds that we experienced in recent years are going to be weaker at the end of 2013." 

However, he cautions that while more workers will be receiving paychecks throughout the year, those paychecks are not likely to grow significantly.

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"There is still a lot of slack in the labor market. Bargaining power is still on the employers' side in most cases," he says. 

The latest jobs report shows that earnings ticked up slightly in January, from $23.74 to $23.78 on an hourly basis. 

The report included one other bit of good news: Due to revisions in the data, the Labor Department now estimates that employers added 335,000 more jobs in 2012 than previously thought. The government revised the figures upward for 10 of the 12 months of 2012.