ALLENTOWN, Pennsylvania - US President Barack Obama said rare good news on jobs Friday came just in time for the "season of hope" but added millions of Americans still felt the "gut punch" of unemployment.

During a tour of economically-blighted Pennsylvania, Obama said surprise figures showing unemployment dropped to 10 percent last month were a sign his policies were working but warned of "bumps in the road" to recovery.

"This is good news, just in time for the season of hope," Obama said, in a town hall-style meeting on the first leg of a tour designed to offer empathy to out-of-work Americans.

"I've got to admit my chief economist, Christy Romer, she got about four hugs when she handed us the report," Obama said, describing the Labor Department figures as "modestly encouraging."

But Obama, who is making job creation a priority of his administration, appealed for perspective, saying that while only 11,000 people lost their jobs last month, millions of Americans were still out of work.

"Too many members of our American family have felt the gut punch of a pink slip," Obama said, adding it was only a few years since his own family had faced hard choices of paying off student loans and other bills.

"There may be gyrations in the months ahead. There are going to be some months where the reports are a little better, some months where the reports are worse, but the trend line right now is good. The direction is clear."

Labor Department figures saw a dramatic improvement in November as the number of jobs lost narrowed to 11,000 and the unemployment rate dipped to 10.0 percent from 10.2 percent in October.

Obama held a "jobs summit" at the White House on Thursday and plans a speech on the economy Tuesday in Washington to unveil new job creation measures.

White House spokesman Robert Gibbs said Friday that Obama could endorse the use of remaining funds of a 700-billion-dollar bailout for the financial industry to fund job creation programs.

Speaker of the House of Representatives Nancy Pelosi said this week that untapped Troubled Asset Relief Program (TARP) money could fund infrastructure investments like water projects, rapid transit, high-speed rail, and expanding Internet access and helping small businesses.

Critics of the scheme however have suggested using unspent TARP funds to pay down part of the huge US budget deficit projected by the White House to hit 1.502 trillion dollars in fiscal 2010.

According to a report to Congress in October, 317 billion dollars remains to be spent under the fund, including 70 billion repaid by financial institutions bailed out under the program.

Obama said at Thursday's jobs summit that he was not prepared to wait to push job creation measures -- but warned that government cash was limited given the size of the deficit so he called on the private sector to help.

Other possible approaches include offering small businesses a tax break to take on new workers for job-intensive energy projects.

Republicans on Friday stepped up their assault on Obama, blaming him for "job killing" policies, including his backing for a cap-and-trade system to cut greenhouse gas emissions.

House minority leader John Boehner said any decrease in the unemployment rate was "encouraging" but he warned of a "jobless recovery" and double-digit unemployment.

In one moment of light relief Friday, Obama made clear that one idea for job creation will not be in his plans -- legalizing prostitution and drugs.

"I appreciate the boldness of your question... that will not be my job strategy," a smiling Obama told a Pennsylvania student who suggested the unorthodox move.

"Part of what you're supposed to do in college is question conventional wisdom.

"You're doing exactly what you're supposed to be doing, which is, you know, thinking in new ways about things," the president joked.