Friday's employment report had conflicting trends between the payroll numbers and the household survey. Although the unemployment rate fell unexpectedly, payroll jobs continue to contract. Nonfarm payroll employment in January fell 20,000, following a revised 150,000 drop in December and revised gain of 64,000 for November. In the previous employment situation report, December showed an 85,000 drop and November rose 4,000. However, today's report contains annual revisions and they were down significantly. The December payroll decrease fell short of the consensus forecast for no change in payroll jobs.

The December decline was led by a 60,000 drop in the goods-producing sector which included a 75,000 decrease in construction. Manufacturing employment actually rose 11,000 after a 23,000 fall the month before. Mining advanced 4,000 in the latest month.

The service providing sector rebounded 48,000 after dropping 69,000 in December. The biggest gain in the latest month was in professional & business services with a 44,000 increase, including a 52,000 boost in temp help. This jump in temps may be the biggest positive in today's report. Temp hiring tends to be a leading indicator for overall payrolls. A sizeable gain of 42,000 also was seen in retail trade.

On the downside within services, financial activities declined 16,000 while leisure & hospitality fell 14,000.

On a year-ago basis, payroll jobs improved to minus 3.0 percent in January from minus 3.6 the previous month.

The annual revision to payroll jobs was sharp. Prior to today's release, the drop in employment from the expansion peak in December 2007 was 7.242 million through December 2009. That number is now a loss of 8.404 million-more than a million worse. Through January 2010, the net job loss is 8.424 million.

Wage inflation in January edged up to a 0.2 percent increase, following a 0.1 percent gain the month before. The median expectation was for a 0.2 percent gain in January. Using the BLS's new, expanded definition, the average workweek rose to 33.9 in January from 33.8 in December. This series includes supervisory workers in addition to non-supervisory and production workers. Based on the traditional measure (just non-supervisory and production workers), the average workweek edged up to 33.3 hours from 33.2 hours in December.

From the household survey, the unemployment rate declined to 9.7 percent from 10.0 percent in December. The household survey for January 2010 reflects updated population estimates. The household survey is based on a much smaller survey sample than the payroll survey.

Friday's report, from the payroll survey, shows the economy weaker than previously believed due to downward revisions from annual updates. Also, January contracted despite the startup of the hiring of temporary Census workers. One temporary factor that could reverse next month was the sharp drop in construction. This may have been weather related and may reverse and add to February. Overall, the labor sector is still struggling as employers are reluctant to hire.