WASHINGTON – The U.S. job market is proving surprisingly strong and raising hopes that the economy will be resilient enough this year to withstand a budget standoff in Washington and potentially deep cuts in federal spending.
Employers added 157,000 jobs last month, and hiring turned out to be healthier than previously thought at the end of 2012 just as the economy faced the threat of the "fiscal cliff."
Still, unemployment remains persistently high. The unemployment rate ticked up to 7.9 percent last month from 7.8 percent in December.
Many economists, though, focused on the steady job growth — especially the healthier-than-expected hiring late last year. The Labor Department revised its estimates of job gains for November from an initial 161,000 to 247,000 and for December from 155,000 to 196,000.
The department also revised its figures for all of 2012 upward — to an average of 180,000 new jobs a month from a previously estimated 150,000.
"The significantly stronger payroll gains tell us the economy has a lot more momentum than what we had thought," Joseph LaVorgna, chief U.S. economist at Deutsche Bank, said in a research note.
The government frequently revises the monthly job totals as it collects more information. Sometimes the revisions can be dramatic, as in November and December.
The January jobs report helped fuel a powerful rally on Wall Street. Stock averages all jumped more than 1 percent. The Dow Jones industrial average closed above 14,000 for the first time since October 2007, two months before the Great Recession officially began.
Beyond the job market, the economy is showing other signs of health. Factories were busier last month than they have been since April 2012. Ford, Chrysler and General Motors all reported double-digit sales gains for last month, their best January in five years.
Home prices have been rising steadily. Higher home values tend to make Americans feel wealthier and more likely to spend.
Housing construction is recovering, too. Construction spending rose last year for the first time in six years and is expected to add 1 percentage point to economic growth this year.
The housing rebound appears finally to be producing a long-awaited return of construction-industry jobs, which have typically help drive economic recoveries. Construction companies added 28,000 jobs in January. Over the past three months, construction has added 82,000 jobs — the best quarterly increase since 2006. Even with the gains, construction employment is about 2 million below its housing-bubble peak of 7.7 million in April 2006.
Health care employers added 28,000 jobs in January. Retailers added 33,000, and hotels and restaurants 17,000. The job growth in retail, hotels and restaurants suggests that employers have grown more confident about consumer spending, which fuels about 70 percent of the economy.
The government uses a survey of mostly large businesses and government agencies to determine how many jobs are added or lost each month. That's the survey that produced the gain of 157,000 jobs for January.
It uses a separate survey of households to calculate the unemployment rate. That survey captures hiring by companies of all sizes, including small businesses, new companies, farm workers and the self-employed. From month to month, the two surveys sometimes contradict each other. Over time, the differences between them usually even out.
The household survey for January found that 117,000 more Americans said they were unemployed than in December. That's why the unemployment rate inched up from 7.8 percent to 7.9 percent.
Some economists had feared that federal budget standoffs might chill spending, investing and hiring. They worried that companies wouldn't hire and consumers would scale back spending in November and December because big spending cuts and tax increases were to take effect Jan. 1 if the White House and congressional Republicans couldn't reach a budget deal.
It turns out, the fears were overblown. In the midst of the budget fight late last year, employers kept hiring.
And Friday's jobs report showed that average hourly wages — up 4 cents to $23.78 in January — were staying ahead of inflation. They had generally failed to keep up with prices since the recession ended in June 2009.
The steady hiring gains should help cushion the economic pain from higher Social Security taxes, which last month began shrinking most workers' take-home pay. 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.
Analysts expect the Social Security tax increase to shave about a half-point off economic growth in 2013, because consumers drive about 70 percent of economic activity.
The hit to consumers is coming at a precarious time. The economy contracted in the fourth quarter of 2012 for the first time in 3˝ years. The drop was due mainly to a steep cut in defense spending and declining exports. Most analysts think those factors will prove temporary and that the economy will grow this quarter and the rest of the year.
Friday's report did serve as a reminder that unemployment has been stuck at 7.8 percent or more since September. The rate would be even higher if many Americans hadn't retired or stopped looking for work. The proportion of the adult population that is working or looking for work is near a 32-year low. If labor force participation were still at its prerecession level, unemployment could exceed 11 percent.
And despite the consistent hiring gains, the job market has a long way to go to fully heal from the recession. Between January 2008 and February 2010, the United States lost 8.7 million jobs. Since then, it's regained 5.5 million — 63 percent of the lost jobs.
"We are still in a crisis-level jobs hole," says Heidi Shierholz, an economist with the liberal Economic Policy Institute.
Long-term unemployment remains a chronic problem. About 4.7 million people have been out of work for six months or more. That's down 15 percent in the past year. But it's still much higher than it's ever been after previous recessions.
Among the long-term unemployed is Will Nielsen, who has struggled to find work for more than a year. He worked as a contractor doing graphic design and video production for a startup company that went bust in December 2011.
The job search has been frustrating: Most of the jobs he's seen advertised are part-time or freelance. Permanent jobs with salaries and benefits seem to him nonexistent.
Contractors aren't eligible for unemployment benefits, so he's been relying on his girlfriend's salary, which has "strained" their relationship.
Nielsen, 37, who lives in Santa Rosa, Calif., applied last month for an electrician's apprenticeship program that would pay a stipend while he learned a new trade. But when he arrived at the training center to submit his application, at least 20 people were there ahead of him.
"It looked like the Great Depression," he said.
Yet the burst of hiring at the end of 2012 has raised hopes that the recovery from the Great Recession is finally strengthening.
"This could be a breakout year for the economy," Bernard Baumohl, chief global economist at the Economic Outlook Group, wrote in a note to clients. "The economy, sales, employment and the stock market are all higher in spite of the bickering and rancor in Washington."
Kaltura, a New York-based online video software company, plans to hire 100 people in 2013, which would bring their staff to 300. The company has 17 open jobs.
Company President Michal Tsur said Kaltura has managed to benefit from the sluggish economy: Companies use its software to post training videos online, reducing the cost of training. Universities are also pushing online video courses to reach more students.
Entertainment companies like HBO are using Kaltura's software to post videos on YouTube, Facebook and on the websites of video providers like Verizon.
Even with high unemployment, Tsur said, it's hard to find the software engineers, sales people and programmers Kaltura needs.
"If we stumble upon superstars," she said, "we'll hire them immediately."