Employers are laying off fewer workers, a trend that normally suggests hiring is picking up. The January jobs report next week will show whether employers have begun to hire more freely or are still waiting for the economy to strengthen.
The number of people seeking unemployment aid has reached a five-year low. Some employers, such as health care companies, restaurants and retailers, are hiring steadily. Yet overall job growth remains modest. And the unemployment rate is the same painful 7.8 percent it was when Barack Obama became president four years ago.
The economy isn't growing fast enough to accelerate hiring. Flat pay and high unemployment are holding back consumer spending, which rose at a meager annual rate of 1.6 percent in the July-September quarter.
The economy expanded at a 3.1 percent annual pace in the same period, partly because companies stockpiled more goods, which boosts production. Most economists think growth dipped below a 2 percent rate in the October-December quarter because consumer demand remains tepid.
Another factor has been uncertainty about federal spending and budget deficits. Most companies don't seem worried enough to cut jobs. But many may not boost hiring until further progress on the budget is achieved. This month, Congress avoided the "fiscal cliff" in part by postponing automatic spending cuts. And this week a deadline for raising the government's borrowing cap was put off for three months.
Significant hiring gains are "unlikely ... when there remains so much political uncertainty," said Paul Dales, an economist at Capital Economics.
First-time applications for unemployment benefits dropped 5,000 last week to a seasonally adjusted 330,000, the government said Thursday. That's the fewest since January 2008. The four-week average, a less volatile measure, also fell to nearly a five-year low.
Applications are a proxy for layoffs. They fluctuated between 360,000 and 390,000 for most of last year. At the same time, employers have added an average of 153,000 jobs a month.
Weekly applications have now fallen below that level for two straight weeks. That suggests that job gains could accelerate.
Still, economists caution that the figures are particularly volatile in January. The government has difficulty adjusting its numbers to account for layoffs after the holiday shopping season. Layoffs typically spike in the second week of January as retailers and other employers cut staff. Then layoffs plummet in the following weeks. The government tries to adjust for those seasonal trends. But the figures can still be volatile.
Tom Gimbel, CEO of the LaSalle Network, a staffing and recruiting firm in Chicago, says he's seeing more demand for temporary and contract employees. Demand for temp employees is up 25 percent in the past three months.
"Companies are putting their foot in the water," Gimbel said.
But they're reluctant to make more permanent hires, partly because they don't want to have to lay off workers if the economy falters, he said. Many businesses still have painful memories of undergoing layoffs during the recession.
"Companies do not want to do that again," he said.
Some sectors are already picking up. Manufacturers added the most jobs in nine months in December. Retailers posted three months of big gains last fall. Restaurants and hotels have been hiring at a healthy pace since the summer.
Health care companies added nearly 30,000 jobs a month last year — almost one-fifth the overall total.
Construction companies may step up hiring soon. They added 30,000 jobs in December, though some of the increase likely reflected temporary hiring for repairs and rebuilding after Superstorm Sandy.
But the once-battered housing sector is recovering, which bodes well for construction jobs. Home builders started work in 2012 on the most new homes in four years. And sales of previously occupied homes reached their highest level in five years last year.
Patrick Newport, an economist at IHS Global Insight, forecasts that construction companies will add 140,000 jobs this year, up from a meager 18,000 in 2012.
Other industries may also benefit. Home improvement retailer Lowe's said Tuesday that it will hire 45,000 temporary workers for the busy spring season. It also said it would add 9,000 permanent part-time employees.
State and local governments, though, are still shedding jobs. And job gains in the financial services and transportation and warehousing industries have been weak for months.
United Airlines said Thursday that it will eliminate 600 positions from its work force of 84,000 people worldwide. The company lost $723 million last year.
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