Updated at 9 a.m. ET
Hiring resumed just tepidly last month after a slump in December, as the labor market faces a long climb to recover the millions of jobs lost during the pandemic.
U.S. employers added 49,000 jobs in January, after a revised drop of 227,000 the month before. Unemployment fell to 6.3%, from 6.7% in December, as hundreds of thousands of people left the workforce.
Industries that saw notable job gains in January include business and professional services and finance, but bars and restaurants continued to lose jobs.
While January's job growth is an improvement, the U.S. has still recovered only 55% of the 22 million jobs that were lost last March and April. Another 1.1 million people filed new claims for unemployment benefits last week. Nearly 10 million fewer people are on payrolls now than were before the pandemic.
"We're not anywhere close to where we want to be in terms of a healthy labor market," said Julia Coronado, president of MacroPolicy Perspectives. "We can't take this recovery for granted. We want to see numbers that are better than that as we come out of this."
Economists also cautioned that last month's jobs number may have been artificially inflated by seasonal adjustments.
Ordinarily, in January, restaurants, retailers and other businesses cut workers after a busy holiday season.
The Labor Department tries to adjust for that, but it may end up overcompensating this time around. Put simply, modest layoffs by bars, restaurants and other industries may have been worse than shown.
Revisions also showed that November's job gains were weaker than initially reported and December's job losses were worse. The report comes amid signs of a remarkably resilient economy, but with a labor market that still has a big hill to climb.
The Congressional Budget Office said this week that the country's economic output will likely match pre-pandemic levels by the middle of this year without any additional government aid.
While in-person services like restaurants and entertainment have continued to struggle against a winter wave of coronavirus infections, the broader economy has bounced back more quickly than many economists expected when the pandemic began.
"In a recession, we typically see job losses leading to a loss of confidence, leading to increased caution, leading to more job losses," Coronado said. "That's the kind of accelerant that you see taking root that drives and spreads a recession."
In this case, that downward spiral was partly short-circuited by trillions of dollars in government spending — including enhanced unemployment benefits, forgivable loans to small businesses and direct payments to most Americans.
"You put money in people's pockets and they found a way to spend a lot of it," Coronado said. "They spent it on different things — housing, cars and less [on] services and entertainment and travel. But that really was quite effective in preventing a much, much deeper recession and more transmission to other sectors."
But CBO forecasters warned employment may not fully recover until 2024, and millions of families and small businesses continue to struggle.
Although new vaccines offer the promise of pandemic relief later this year, it's expected to take months to provide shots to everyone who wants them. Congress is now weighing how much additional federal aid might be necessary to keep businesses and families afloat until then.
The Biden administration has proposed a $1.9 trillion aid package that would include $1,400 direct payments to most people, while also extending unemployment benefits through September, or longer if conditions warrant.
Achieving full — and more equitable — employment is a key priority for the Biden administration.
"We've got some tough months ahead until we get control of the pandemic," Treasury Secretary Janet Yellen said Thursday on ABC's Good Morning America. "We want to make sure we've got a good, strong labor market [that] can put people back to work and that these small businesses that need help survive."
Moderate Republicans in the Senate have proposed a more modest $618 billion package. It includes direct payments of $1,000 to a smaller group of people and would extend unemployment benefits only through June.
Coronado suggested that aggressive federal spending might provide important psychological support for the still-fragile economy.
"You're thinking, 'The government's got my back and I've got a source of support,' whether you're a small-business owner or somebody who's had hours cut back or just somebody who's looking at the world and worried about what might happen," she said. "One of the things we've learned is that policy can really help."
STEVE INSKEEP, HOST:
There was a modest rebound in the U.S. job growth last month. We got some data this morning showing U.S. employers added 49,000 jobs in January, even though it was one of the deadliest months of the pandemic. NPR chief economics correspondent Scott Horsley joins us as he does on such occasions. Scott, good morning.
SCOTT HORSLEY, BYLINE: Good morning, Steve.
INSKEEP: I guess that's better than losing jobs, but 49,000 is not a big number.
HORSLEY: No. We are moving in a positive direction but at a painfully slow pace. You know, the U.S. economy is still about 10 million jobs shy of where it was before the pandemic. It's recovered just over half the 22 million jobs that were lost last spring. And while January's numbers are certainly an improvement from December's when we were losing jobs, economist Julia Coronado of MacroPolicy Perspectives says there's a really long way to go.
JULIA CORONADO: We're not anywhere close to where we want to be in terms of a healthy labor market. We can't take this recovery for granted. We want to see numbers that are better than that as we come out of this.
HORSLEY: Today's report also showed that the job market in November and December was significantly weaker than initially reported. And even these modest job gains that we're seeing for January may be somewhat exaggerated because of seasonal adjustments.
INSKEEP: What do you mean by exaggerated?
HORSLEY: Well, ordinarily, January's a time when restaurants and retailers and other industries cut workers for seasonal reasons after the busy, you know, holiday period. And the Labor Department tries to smooth that out. This year, they may have overcompensated. And so well, for example, the report says bars and restaurants cut 61,000 jobs last month. The actual cuts may have been even bigger than that.
HORSLEY: And keep in mind, a lot of these service jobs tend to be low paying. So once again, this is an economic downturn that is weighing heaviest on the people who can least afford it.
INSKEEP: OK. So our sense is that service jobs are still doing badly, as you would expect during a pandemic. But what about the rest of the economy?
HORSLEY: You know, it's been more resilient than a lot of people expected early on. Certainly businesses that rely on face-to-face contact, like restaurants and nail salons, have struggled. But a lot of other industries have found ways to work around the pandemic. Congressional forecasters said this week they expect the overall output of the economy will be back to its pre-coronavirus levels by the middle of this year. Coronado says trillions of dollars in federal spending has also made a difference.
CORONADO: You put money in people's pockets, and they found a way to spend a lot of it. They spent it on different things - housing, cars and less services and entertainment and travel. But that really was quite effective in preventing a much, much deeper recession.
HORSLEY: That said, services, entertainment and travel account for a lot of jobs in this economy. And while GDP is expected to bounce back this year, those same congressional forecasters say they don't expect a full employment recovery until 2024.
INSKEEP: Well, that's a long time away. And we are, of course, at least - well, who knows how many months? - a good number of months before the vaccines have completely transformed the pandemic landscape. What can policymakers do in the meantime?
HORSLEY: Well, the Biden administration is already using this report to talk up their proposed $1.9 trillion rescue package. Of course, a group of moderate Senate Republicans have countered with a smaller aid package. One question is how long to extend unemployment benefits. As of mid-January, 18 million people almost were collecting jobless benefits in this country. And we learned yesterday that another 1.1 million people applied for unemployment aid just last week.
INSKEEP: Another huge number. Scott, thanks.
HORSLEY: Good to be with you.
INSKEEP: NPR's Scott Horsley.
(SOUNDBITE OF YO LA TENGO'S "I HEARD YOU LOOKING") Transcript provided by NPR, Copyright NPR.