Don't Be Fooled By Lower Unemployment Rate, Job Losses Continue to Mount

The U.S. economy shed 20,000 jobs in January, a tad worse than expectations for a reading of flat to up 15,000. The unemployment rate unexpectedly fell to 9.7%, a five-month low.

A falling unemployment rate is certainly good news for the Obama administration, and temporary hiring, which typically leads to permanent hiring, was up by 52,000. In addition, the average hourly workweek rose to its highest level since February 2009 and average hourly earnings were up as well.

Another positive sign: The labor force grew by 111,000 last month and the so-called real employment rate fell to 16.5% from 17.3%.

But it's a mistake to view the report as unabashedly "good" news.

Beneath the headlines, the government reported the U.S. economy has lost 8.4 million jobs since the recession officially began in December 2007, a sharp upward revision from 7.2 million previously reported; that includes 930,000 jobs more than previously estimated in the 12 months ended March 2009.

In addition, the ranks of the long-term unemployed swelled to over 6 million and the number of "discouraged" job seekers rose to 1.1 million vs. 734,000 a year ago.

Looking at the report, one might logically ask: If jobs growth was minimal (or non-existent) and the labor force grew -- meaning more people are officially being counted as looking for work -- how did the unemployment rate fall?

"The payroll data and the unemployment rate come from two separate surveys, which explains some of the divergence in the data," writes Diane Swonk, chief economist at Mesirow Financial, attempting to explain this conundrum. "The drop in the unemployment rate was particularly surprising, as it was predicated on households reporting an increase in employment. This could be capturing the self-employed doing slightly better than they had been, but it is still puzzling."

Peter Boockvar of Miller Tabak notes the household survey, which is part of the unemployment calculation, showed jobs rose by 541,000.

So, yes, there are quirks in the data, and even some of the pros found this morning's report a bit confusing. The report is a bit of a Rorschach test, with something for bull and bear alike to point to.

The bottom line: "The recovery that we began to see in the summer of 2009 continues, and we will soon reap some benefits in terms of jobs," Swonk writes. "That said, the jobs recovery is expected to remain muted and the economic recovery is still subdued relative to those of the past."