WASHINGTON: The US unemployment rate surprisingly fell to a five-month low in January and factory payrolls grew for the first time since 2007, hinting at a labor market recovery even though the economy lost 20,000 jobs.

The White House cautiously welcomed the figures but said more needed to be done to put people back to work. Democrats fear voters could punish them in November congressional elections if headway is not made in tackling unemployment.

The decline in payrolls reported by the Labor Department on Friday was far smaller than the 150,000 drop posted in December. November’s data from the survey of employers was revised sharply higher to a gain of 64,000, up from 4,000.

The jobless rate, based on a separate household survey, fell to 9.7 percent from 10 percent in December. That survey found employment rising, with the size of the labor force roughly flat.

Analysts had expected payrolls to rise by 5,000 and the unemployment rate to edge up to 10.1 percent. “The wheels of the economy are turning. The improvement in the employment data does match the increase in GDP the last two quarters so it’s not a fluke. The economic recovery looks much more sustainable today,” said Chris Rupkey, senior financial economist at Bank of Tokyo/Mitsubishi UFJ in New York, referring to Gross Domestic Product, a measure of the economy. Details of the report were relatively upbeat. The length of the average workweek hit its highest in a year and overtime in manufacturing was the most since September 2008, suggesting growing pressure to add to payrolls.

Some analysts, however, were skeptical of the drop in the jobless rate and believed it would head higher again.

Annual revisions to the payrolls data showed job losses since the recession began were much deeper than originally thought. The economy has lost 8.4 million jobs since the start of the recession in December 2007. Before the revisions, the figure was 7.2 million.

In January, the number of “discouraged job seekers” stood at 1.1 million, up from 734,000 a year ago.

With Americans increasingly anxious about persistent high unemployment, President Barack Obama has declared that job creation will be his top priority in 2010. Obama on Friday announced proposals to expand credit for small businesses with the aim of spurring job growth.

“These numbers, while positive, are a cause for hope but not celebration,” Obama said.

Financial markets have grown nervous about the prospect of unemployment in the United States remaining high for a long time. The economy resumed growth in the second half of 2009, but a labor market recovery has yet to materialize.

While the US economy is growing, recovery hopes in Germany were dealt a set back by a sharp drop in industrial output in December.

Analysts expect US payrolls to start growing in February as the government steps up temporary hiring for the 2010 census.

“This hiring will continue to push the unemployment rate lower and then once the need for these workers is finished they will be fired and the unemployment rate will drift back up to the 10 percent area,” said Brian Fabbri, chief North America economist at BNP Paribas in New York.

Last month, the services sector added 40,000 jobs after shedding 96,000 positions in December. The figure included a rise in federal government employment, partly a result of early hiring for the census.

In another positive trend, temporary help employment rose 52,000 last month, while manufacturing payrolls increased 11,000, the first gain since January 2007. Manufacturing employment had dropped 23,000 in December. But the construction sector continued to struggle, losing 75,000 jobs, likely because of unusually cold weather. Construction payrolls fell 32,000 in December.

In another sign of labor market improvement, the average workweek unexpectedly edged up to 33.3 hours, the highest in a year, from 33.2 in December, while manufacturing overtime rose to 3.5 hours, the highest since September 2008.

“This suggests that firms are straining to keep up with rising demand without hiring. We believe that as long as orders keep streaming in, at some point soon firms are going to have to give in and add workers,” said Stephen Stanley, chief economist at RBS in Stamford, Connecticut.

Obama said on Friday new jobs figures showed the United States was climbing out of the “huge hole” created by the recession but he cautioned that the data would fluctuate in the months to come.

“Understanding that these numbers will continue to fluctuate for months to come, these are welcome if modest signs of progress along the road to recovery,” he said after a meeting with small business owners near Washington.

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