U.S. data shows economy struggling

Rob Lever, Agence France-Presse, Washington

A mixed set of economic figures released Friday show the United States is struggling ahead but is not quite yet out of the grip of recession, with the labor market still fragile, analysts said.

The Labor Department reported that the U.S. unemployment rate fell to 5.6 percent in January from 5.8 in December, but that 89,000 jobs were lost.

While the fall in the jobless rate was a positive sign, economists were disappointed over the large number of jobs lost.

Mark Vitner of Wachovia Securities said the jobless rate fell because 587,000 people dropped out of the work force.

The report "suggests that many job seekers are giving up or at least postponing their job search until economic conditions improve," he said. "That is not an encouraging sign for near-term economic prospects."

Vitner added that the drop in hours worked and lack of a gain in hourly earnings "means production and income were relatively stagnant in January, which strongly suggests that the recession hasn't ended just yet."

But Melanie Jani, an economist at Salomon Smith Barney, was less concerned about the jobs reports, which is a "lagging" indicator that does not point to future activity. Moreover, she said the number of jobs lost is diminishing and other data point to recovery.

"The latest data continues to suggest that the economy is bottoming," Jani said. "The labor market appears to have stabilized, confidence is at a one-year high, while the worst appears to be over for the manufacturing sector ... in the context of an economy that is bottoming, one cannot expect employment to lead."

Other data also gave analysts a mixed picture.

The Institute for Supply Management said its manufacturing index -- a key sign of industrial activity -- rose to 49.9 in January from a revised 48.1 in December.

Any figure below 50 suggests declining activity while a higher figure suggests expansion.

But ISM chair Norbert Ore said the report showed improvement in manufacturing and an overall economy that is likely growing.

"The overall picture shows improvement in manufacturing activity during the month of January," added Ore. "While the manufacturing decline is now in its 18th month, some industries are starting to show significant signs of recovery as both new orders and new export orders are improving."

The University of Michigan consumer sentiment index rose to 93.0 in January reading from 88.8 a month earlier, market sources said.

However, the reading was lower than an initial estimate of 94.2.

President George W. Bush said the economy remains "soft," and still needs an economic stimulus plan.

"We are not out of our economic problems. We still got problems," Bush said. "The economy is still soft. Too many people are not working. There is not enough job creation and I believe ... we need a stimulus package."