US employers added far more jobs than forecast last month, underlining the resilience of the labour market despite aggressive actions from the Federal Reserve to cool inflation.
Total non-farm payrolls added 517,000 jobs in January, data from the Labour Department showed, far exceeding a Reuters estimation of 185,000. It also surpassed the number of jobs added in January 2022 by 13,000.
The unemployment rate ticked down from 3.5 per cent to 3.4 per cent, a new 53-year low.
Average hourly earnings rose 0.3 per cent, down from 0.4 per cent in December. Hourly earnings increased by 4.4 per cent over the last 12 months.
“Today, I’m happy to report that the state of the union and the state of our economy is strong,” President Joe Biden told reporters.
But he added his administration still has more work to do to lower healthcare costs, prescription drug costs and energy prices.
Friday's report poses further challenges for the Fed and remains a significant hurdle in its battle to suppress inflation.
Fed Chairman Jerome Powell on Wednesday told reporters that the jobs market remains well out of balance, with 1.9 positions available for every job seeker.
Jobless claims, an indicator for layoffs, fell to their lowest level in nine months.
Stock markets were all down at the open on Friday as traders prepared for continued aggressive Fed action.
Naeem Aslam, chief market analyst at AvaTrade, described the jobs report as “mind blowing”.
“The reading was so good that many had to check the reading twice to make sure that there was nothing wrong there,” he said.
Mr Aslam said that while stocks were down now, “the reality is that today’s number is good for the US economy and this is likely to encourage traders to back riskier assets once the dust settles.”
The Fed, hoping to cool inflation — and with it, the jobs market — has raised interest rates eight times since March 2022, including its most recent quarter-point increase this week.
Mr Powell said the effects of its aggressive interest-rate rises are yet to be felt.
Inflation remains at 6.5 per cent, down from peaking at 9.1 per cent in July but still well above the Fed's long-term goal of 2 per cent.
“I would say it is it is a good thing that the disinflation that we have seen so far has not come at the expense of weaker labour markets,” Mr Powell said.
“But I would also say that the disinflationary process you now see under way is really at an early stage,” he said, noting that the Fed's work remains far from over.
The full effects of the Fed's actions have yet to be felt, he said.
So far, layoffs have mostly been felt in the tech sector, with companies announcing plans to cut thousands of positions. Amazon plans to lay off 18,000 employees, Microsoft chief executive Satya Nadella said the company will cut 10,000 positions, and other Big Tech companies have announced similar intentions.
“With so many job losses across the tech sector, caution is the key word over how long this size of report can be retained in the near future,” said Srijan Katyal, Global Head of Strategy & Trading Services at ADSS.
Mr Powell believes there is a way for inflation to climb down to the Fed's 2 per cent goal “without a really significant economic decline or a significant increase in unemployment”.
The Fed in December anticipated interest rates would climb to 5.1 per cent by the end of this year, though a stubbornly resilient jobs market could prompt officials to go above original estimates. Mr Powell said the Fed would update forecasts at its March meeting.
Interest rates stand between 4.50 and 4.75 per cent, with “continuing increases” expected, the Fed said.