The nation’s employers reduced their payrolls by 20K last month, generating fresh anxiety about a work market that has yet to catch up with growth in the economy on a grand scale.

The reduction was worse than the 15K jobs economists were expecting.  The nation’s unemployment rate dropped to 9.7% from the 10% level of a month ago.

The economy lost 85K jobs in December after gaining 4K in November and losing 127K in October.

The Labor Department today also issued the annual benchmark update showing the economy lost 930K more jobs than previously estimated in the year ended March 2009.  This means the total job losses during the recession were worse than previously thought:  8.4M jobs lost versus 7.2M.

“This report shows how slow the job market is to recover, as other sectors of the economy show improvement,” ABC News business correspondent Betsy Stark said.  “Yes, things are moving in the right direction but at a snail’s pace.”

Despite the mixed numbers, an increasing amount of economists and labor market analysts say the unemployment picture in the United States is actually far worse.

They argue that the Labor Department undercounts the number of unemployed in this country, adding fuel to a debate on whether the government is providing an accurate snapshot of the nation’s unemployment picture.

“Our gripe about the numbers is that it leaves out broad swaths of unemployed people in the country,” said Madeline Schnapp, director of macroeconomic research at TrimTabs, a California based investment research firm.

Like other economic observers, Schnapp argued that the Labor Department’s methodology is flawed because it’s based on surveys and polling and ignores “the real-time data available via analysis of withheld income and employment taxes.”

A TrimTabs report this week estimated that the U.S. economy actually lost 104,000 jobs in January, far more than what the government report shows today.

The Department of Labor calls 60,000 households in the United States each month to determine who is employed and who is unemployed.  This is known as the household survey.

The unemployment rate that is announced is mostly based on this survey.  Anyone who works at least one hour a week is considered employed by the Labor Department.

The people collecting unemployment insurance are not counted because approximately 35% of the unemployed are eligible for unemployment insurance in the United States.

People who have stopped looking for work are not counted as unemployed either.

Besides the household survey, the establishment survey looks at 375K businesses that produce the nonfarm payrolls, average workweek and average hourly earnings figures, among others.

“if the government is saying the economy is doing better or worse than it is, then businesses are making decision on hiring and capital expenditures based on these reports,” Schnapp said.

cf http://abcnews.go.com/Business/PersonalFinance/unemployment-rate-drops/story?id=9746469