WASHINGTON The U.S. economy added nearly three times more jobs than expected last month as banks, mortgage lenders, and builders stepped up hiring.
This suggests that service companies are still growing even as manufacturing slides.
Payrolls rose by 268,000 last month, versus the 19,000 added in December and the 90,000 expected by analysts. The unemployment rate, however, rose to 4.2% from 4%.
Employment at financial services companies climbed 29,000 after rising 13,000 in December, even as some banks and other financial companies digested layoffs announced last year.
The Labor Department said that an increase in home sales and refinancings helped boost employment.
January service employment which includes government hiring rose 183,000 after climbing 94,000 a month earlier. Retail employment surged 27,000 after increasing 18,000 in December.
Construction jobs jumped by a record 145,000 last month after 18,000 jobs were lost in this category in December, when winter weather hampered activity nationwide, diminishing the need for workers. The Labor Department said unusual weather patterns in the last three months contributed to lighter than normal layoffs in January.
Without the increase in construction, payrolls rose 123,000 in January.
Once you net it all out, figuring the construction workers jump will be paid back later, you get a number thats more in line with where job growth has been recently, said Mark Vitner, an economist at First Union Corp. in Charlotte, N.C.
The rise in payrolls was the biggest since April, when 410,000 jobs were added, and reflected the record increase in construction employment.
However, factories shed 65,000 jobs in January. Since June a quarter million factory jobs have been cut. General Motors Corp., Ford Motor Co., and DaimlerChrysler AG idled factories last month to cut production and reduce inventories. Dorel Industries Inc., a furniture maker, said it would fire 190 workers.
Shopko Stores Inc., a discount retailer that operates primarily in the Midwest, announced on Thursday that it would fire 2,500 workers and close 23 stores. Sara Lee Corp., the maker of Hanes underwear and Leggs hosiery, said last month that it would fire 7,000 workers.
Its too early to be writing the obituary on this expansion, Mr. Vitner said. We still may be skirting the edge of a recession, but just maybe were going to be able to avoid one.
The decline in manufacturing employment is one reason that Federal Reserve policymakers cut interest rates a half-percentage point on Wednesday, the second reduction in the month.
The policymakers cited the need for a rapid and forceful response to the recent economic slide and suggested they may reduce rates again if necessary to avoid recession.