The US jobless rate dropped to 6.3 per cent in January and the economy created 49,000 jobs last month, as the recovery continues to struggle through the surge of coronavirus infections during the winter months.
The small increase in non-farm payrolls partly reversed the dip in job creation during December and matched economists’ expectations of a 50,000 gain.
The drop in the unemployment rate from 6.7 per cent in December was driven more by US workers exiting the labour force than rising employment, a discouraging trend for the US economy.
The return to job growth will reassure US economists and policymakers that the decline in December may have only been temporary and tied to a wave of new restrictions on activity to contain the pandemic, which are now easing.
However, the pace of new employment in the US economy remains extremely lacklustre, highlighting the travails of a labour market that is still operating far from full capacity and nowhere near its pre-pandemic levels.
Sectors such as leisure, hospitality and retailing continued to shed jobs last month, while gains were concentrated in government employment and professional and business services, like temporary help.
The weakness of the US jobs market has been one of the main catalysts for president Joe Biden’s drive to enact a new $1.9tn economic stimulus plan during this first weeks in the White House.
While Biden has engaged in some negotiations with moderate Republicans on a compromise, he is leaning towards passing a version of it with only Democratic support, to avoid seeing it watered down excessively.
Early on Friday, the US Senate passed a so-called “reconciliation” bill approving a process in the upper chamber that will allow Democrats to pass Biden’s stimulus measures with a simple majority of votes. Friday’s bill was approved with Kamala Harris, the vice-president, casting the tiebreaking vote after a 50-50 split between the two parties.
The potential for large-scale new economic stimulus, along with hopes for widespread vaccination distribution, has bolstered confidence in a significant US economic recovery in 2021, after last year’s contraction.
Jay Powell, the Federal Reserve chair, and other US policymakers have warned that the US economy remains vulnerable to setbacks because of the trajectory of the virus as well as the structural shifts in the economy, including long-term scarring, associated with the pandemic.
But Larry Summers, the former US Treasury secretary under Bill Clinton and Harvard University professor, warned that Biden’s plan may be excessive, in an opinion piece for the Washington Post this week.
“The Biden plan is a vital step forward, but we must make sure that it is enacted in a way that neither threatens future inflation and financial stability nor our ability to build back better through public investment,” he wrote.
US Treasuries pared earlier losses on Friday after the report. Yields, which fall as prices rise, slipped to 1.15 per cent for the 10-year benchmark note. Prior to the release, they hovered at 1.165 per cent. US equity futures, meanwhile, pointed to a slight gain when trading kicks off in New York, with the S&P 500 tipped to rise 0.45 per cent.
The dollar index was 0.1 per cent lower.