The U.S. unemployment rate unexpectedly fell from 10 per cent to 9.7 per cent in January, even though the American economy lost 20,000 jobs, the U.S. Labour Department said Friday.

The 9.7 per cent unemployment rate is the lowest in five months, but analysts said the rate fell because more Americans had given up looking for work.

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U.S. President Barack Obama says the drop in the unemployment rate is "cause for hope but not celebration."

Economists had forecast the addition of 5,000 jobs in January and were expecting the jobless rate to edge up to 10.1 per cent.

President Barack Obama, speaking at a small business in a Washington suburb, said the report is "cause for hope but not celebration."

He said the data shows modest progress toward "climbing out of the huge hole that we found ourselves in." But he said that "far too many of our neighbors and friends and family are still unemployed," requiring much additional work to bring the economy back. 

Obama also cautioned against reading too much into the single report. He said that "these numbers will continue to fluctuate for months to come."

The U.S. Labour Department also revised employment reports for December and November.

It now says the U.S. economy lost 150,000 jobs in December, worse than the 85,000 originally reported. In November, job gains were boosted from 4,000 to a gain of 64,000. 

About 8.4 million jobs have vanished in the U.S. since the recession began in late 2007.