Private sector's 166,000 new jobs were offset by 9,000 cut by US government as pace of US recovery remains weak

The US unemployment rate edged up to 7.9% in January as the number of new jobs came in below expectations, in a further indication of the fragility of the economic recovery.

Figures released on Friday showed that there were 157,000 new jobs in January, not enough to offset the number of job losses and pushing up the unemployment rate by 0.1 percentage point.

The Bureau of Labor Statistics reported that the private sector added 166,000 jobs. But that was offset by a cut in government posts of 9,000. More are expected to go in the coming months as cuts bite deeper.

Economists polled by Dow Jones Newswires forecast the US would add around 166,000 jobs in January and had expected the unemployment rate to stay at 7.8%.

In a statement Alan Krueger, president Obama's chief economic adviser, said: "While more work remains to be done, today's employment report provides further evidence that the US economy is continuing to heal from the wounds inflicted by the worst downturn since the Great Depression. It is critical that we pursue the policies needed to build an economy that works for the middle class as we continue to dig our way out of the deep hole that was caused by the severe recession that began in December 2007."

The unemployment rates for adult men and women remained at 7.3%, while the rates for teenagers, at 23.4% and black people, 13.8%, showed little or no change in January. The number of people looking for and unable to find work remained at 12.3m.

However the BLS revised upwards the number of jobs it believes were added in November from 161,000 to 247,000, and in December from 155,000 to 196,000.

Dan Greenhaus, chief global strategist at BTIG, said January's figure was "somewhat disappointing". "We had thought 200,000 was not out of the question but clearly, the underlying rate of job creation in this economy – roughly 150,000 – won out. That all said, the report was, in the context of today's environment, pretty good. Job growth was fairly broad based, with most categories seeing growth," he said in a note to clients.

The revisions and better-than-expected economic news from the manufacturing sector cheered investors. The Dow Jones Industrial Average ended above 14,000 for the first time since October 2007.

The US has now added jobs for 28 months in a row but the pace of job creation remains historically weak compared to recoveries after other recessions. After the latest revisions, the US added an average of 181,000 jobs a month in 2012, better than the 152,900 originally reported.

The news is the latest signals of the fragility of the economic recovery in the United States. On Wednesday the Commerce Department announced that the US economic recovery went into reverse in the final quarter of 2012. US gross domestic product declined 0.1% on an annual basis at the end of 2012, dragged down by the largest cuts in defense spending since the end of the Vietnam war and by businesses cutting back on inventories. GDP had risen 3.1% in the previous quarter.

On Thursday the Labor Department reported a surge in the number of people filing first time claims for unemployment benefits. Initial jobless claims increased by 38,000 to 368,000 in the week ending January 26. It was the largest rise since the spike that followed hurricane Sandy. The number remained below 400,000, the level at which most economists argue the jobs market is worsening.

Ken Goldstein, economist at the Conference Board, said the revisions in last year's figures suggested the economy was on track despite the "lousy GDP report."

"There is some statistical change here, what last year was the high end of the forecast for jobs numbers is now the middle of the range," he said. "The fear that the economy is stalling and will continue to diminish, not by leaps and bounds but step by step."

The jobs prognosis, at least in the public sector, shows no sign of improving. Government spending cuts, known as sequestration and agreed as part of the fiscal cliff debate, are set to start on 1 March. The military budget will be cut by 7.3% this year and discretionary government programmes by 5%. Both are likely to have an impact on the jobs market in coming months.

Krueger called for Congress to act to avoid "self-inflicted wounds to the economy."

"The administration continues to urge Congress to move toward a sustainable Federal budget in a responsible way that balances revenue and spending, and replaces the sequester, while making critical investments in the economy that promote growth and job creation and protect our most vulnerable citizens," said Krueger.

Economists said Washington's deadlock over the fiscal cliff had impacted the GDP figure as businesses scaled back.

Maya MacGuineas, president of Fix The Debt, a nonpartisan group lobbying for fiscal reform, said the "revelation that GDP contracted in the fourth quarter of last year – in part due to the anticipation of continued partisan bickering over fiscal issues – only serves to underscore the importance of our elected leaders reaching a comprehensive agreement to reduce the deficit and start controlling the debt."