Unemployment Rate Dips to 9.7% in January

Updated with commentary and further details from the report.

WASHINGTON (TheStreet) -- Employers shed jobs at a slower pace in January, but the nation's unemployment rate edged lower, according to a government report released Friday.

Nonfarm payrolls dropped by 20,000 in January. Consensus estimates called for payrolls to increase by 15,000, according to Briefing.com, though individual forecasts varied widely ahead of the Bureau of Labor Statistics' release.

But in a surprise, the nation's unemployment rate, which is culled from a separate survey, edged down to 9.7%. That's the rate's lowest level since August. Economists had expected the headline rate to hold steady at 10%. In a further hint of recovery, the underemployment rate, which also includes part time and discouraged workers not looking for work, fell to 16.5% in January from 17.3% in the prior month.

"It's confirming what we thought before, which was a slow recovery with signs of gradual improvement," said Paul Ballew, chief economist for Nationwide Insurance. "The report is a mixed bag and we were expecting a mixed bag, but it tells us once again we have a weak labor market and we're looking at a protracted period of moderate growth, that's only starting on the margins."

Nonfarm payrolls lost 150,000 jobs in December, a downward revision after an original report held that 85,000 jobs were lost. But November payrolls were revised higher, showing employers added 64,000 jobs after originally reporting an increase of 4,000.

Some positive trends were made in a cross-section of industries. The manufacturing sector also added jobs for the first time in three years -- 11,000 jobs. The retail sector added 42,000. Temporary help services also hired 52,000. On the other hand, construction employment lost 75,000 jobs in January.

The federal government also added another 33,000 jobs, about 9,000 of which were due hiring in preparation for the 2010 Census.