WASHINGTON (AP) -- The unemployment rate is sinking at the fastest pace in half a century because a surprisingly large number of people say they're finding work.
It conflicts with a business payroll survey last month that showed relatively weak job growth. But that survey doesn't count the self-employed and likely undercounts the nation's smallest businesses. Also, harsh weather disrupted business payrolls in January.
The unemployment rate dropped sharply last month to 9 percent, based on a government survey that found that more than a half-million people found work. A separate Labor Department survey of company payrolls showed 36,000 net jobs created - barely a quarter of the number needed to keep pace with population growth.
The government's survey of households is used to calculate the unemployment rate. That measures the self-employed, farm workers and household employees. They are not included in the payroll survey. Many economists also say the household survey includes more people who work at small companies.
The number of people who called themselves self-employed rose by 165,000 to 9.7 million in January, the report said. That's the highest total since last May.
"It is clear that the drop in unemployment reflected more jobs being added, not a drop in the labor force," said Nigel Gault, chief U.S. economist at IHS Global Insight.
Harsh snowstorms last month also likely played a role. They cut into construction employment, which fell by 32,000, the most since May. Transportation and warehousing was also likely affected and fell by 38,000 - the most in a year.
"The thumbprints of the weather were all over this report," said Neil Dutta, an economist at Bank of America Merrill Lynch. Hiring was suppressed last month and will likely rebound in February, he said. "We know the job market is recovering."
In one bright spot, manufacturing added 49,000 jobs, the most since August 1998. And retailers added 28,000 jobs, the largest number in a year.
The unemployment rate has fallen by eight-tenths of a percentage point in the past two months. That's the steepest two-month drop in nearly 53 years.
But part of that drop has occurred as many of those out of work gave up on their job searches. When unemployed people stop looking for jobs, the government no longer counts them as unemployed.
The number of people who have given up looking rose to 2.8 million last month, from 2.6 million in December. About one million of those workers said they were discouraged. The others stopped looking because they returned to school or for other reasons.
And the participation rate, which is the percentage of the working-age population working or looking for work, fell to a 26-year low of 64.2 percent.
The number of people unemployed fell by more than 600,000 in January to 13.9 million. That's still about double the total that were out of work before the recession began in December 2007.
In early trading on Wall Street, the Dow Jones industrial average rose 15 points, or 0.1 percent, to 12,075. The S&P 500 gained 2 to 1,309. The Nasdaq composite index added 5 to 2,759.
The January jobs report also includes the government's annual revisions to the employment data, which showed that fewer jobs were created in 2010 than previously thought. All told, about 950,000 net new jobs were added last year, down from a previous estimate of 1.1 million. The economy lost about 8 million jobs in 2008 and 2009.
In the past three months, the economy generated an average of 83,000 net jobs per month. That's not enough to keep up with population growth.
The weakness in the government payroll survey was widespread. Restaurants and hotels cut 2,200 jobs. Governments shed 14,000 positions. And temporary help agencies eliminated 11,000 jobs. Financial services lost 10,000 positions.
Education and health care services, one of the few steady job generators through the downturn, added 13,000 jobs, the fewest in almost two years. Financial services lost 10,000 jobs.
The number of people employed part time, but who would like full-time work, fell sharply to 8.4 million, from 8.9 million in December. When taken together with the people who have given up looking for work, the so-called "underemployment" rate was 16.1 percent. That's down from 16.7 percent the previous month.