Q+A-US jobless rate drops even as job growth disappoints

Feb 4 (Reuters) - The U.S. unemployment rate recorded its biggest two-month decline since 1958 in January, yet the government's tally of last month's job growth came in far short of Wall Street's expectations.

The Labor Department's headline figure showed a paltry 36,000 jobs created in January, well short of analysts' expectations for 145,000. So why did the jobless rate drop to 9 percent last month, its lowest level since April 2009?

Below are some questions and answers on why the unemployment rate and jobs count can send such seemingly differing signals and how economists called it so wrong.

WHY DID THE JOBLESS RATE FALL SO FAR WHEN JOB GROWTH WAS MODEST?

The employment report is compiled from two different surveys. Economists tend to look at the bigger and less-volatile survey of non-farm employers. That's the survey that yielded the 36,000 increase in employment.

The jobless rate is derived from a separate survey of households.

For its establishment survey, the Labor Department polls about 140,000 businesses and government agencies. In contrast, it polls only about 60,000 households for its household survey -- one reason economists rely more heavily on the poll of employers.

The household survey showed the number of people employed rose by 589,000 after adjusting for different population counts between the two months. The number of unemployed dropped by almost exactly the same count. That explains the drop in the jobless rate.

Interpreting the household series was particularly tricky for January because the government updates its population counts to incorporate fresher data, and that means comparisons between December and January are skewed. Some economists initially thought the drop in the jobless rate reflected an exodus of workers from the labor force.

However, a special data series smoothing out differences related to the new population count showed that the size of the labor force held steady.

WHY WERE ECONOMISTS SO FAR OFF IN THEIR FORECASTS?

Weather was a big wild card this month. Heavy snowstorms kept 886,000 people from work last month, a Labor Department official said. That was roughly double the number who are snow-bound in a typical January.

Economists find it very hard to estimate how much heavy storms might impact the payroll count; indeed, even afterward it is impossible to quantify the effect fully.

Part of the reason is the way the Labor Department conducts its survey of employers. If you were paid at all, even for just one hour, during the survey reference pay period -- the pay period containing the 12th of the month -- you are considered employed for purposes of the report.

The government may also be undercounting jobs coming from newly created businesses, Labor Secretary Hilda Solis said. The agency has to find businesses in order to poll them, and it takes time to discover newly opened companies.

That may help explain why the household survey shows so many more people finding work.