US job gains surged unexpectedly last month as unemployment slipped to its lowest rate in more than five decades, government data showed Friday, despite strong efforts to ease economic activity.
The latest data could prove concerning to policymakers, with the central bank recently tempering its aggressive campaign to tame inflation on signs that the world’s biggest economy is cooling.
But the United States defied expectations to add 517,000 jobs in January, nearly double the December figure, after a five-month slowdown in hiring, as the jobless rate edged down to 3.4 percent, said the Labor Department in a report.
“Job growth was widespread, led by gains in leisure and hospitality, professional and business services, and health care,” the report added.
Meanwhile, wage growth slowed slightly, with average hourly earnings rising by 0.3 percent to $33.03, the report added.
This suggests the labor market remains too hot for policymakers’ liking, with the hiring figure marking a sharp spike from December’s 260,000 number.
The Federal Reserve has been closely eyeing the jobs market, with demand exceeding the supply of available workers and employers keen to retain staff they may have struggled to find during the pandemic.
While unemployment is typically seen to edge up as interest rates rise and borrowing costs go up, the jobless rate has hovered at historically low levels in recent months.
Among the Fed’s worries is that elevated wages could feed into services inflation.
In January, average hourly earnings rose by 0.3 percent, to $33.03, said the Labor Department.
“The data show the economy is creating jobs at a rapid pace,” said Rubeela Farooqi, chief US economist at High Frequency Economics.
The economy is showing “no sign of softening” despite the Fed’s eight consecutive hikes to the benchmark lending rate, aimed at easing demand and bringing down costs.
“Without an adjustment in the labor market, the risk is that rates will move higher than anticipated,” she said.
This could cause repercussions on other areas, with interest-sensitive sectors such as housing already slumping on higher rates while retail sales slowed.
Although salary gains have been coming down, wages are “still at a high level,” Fed Chair Jerome Powell told reporters Wednesday.
“They’re still at a level that’s way above — well above where they were before the pandemic,” he said. “It’s going to be reflected in our assessment of the outlook and that will be reflected in our policy over time.”
The central bank this week announced a smaller interest rate hike while signaling the inflation fight was not over.
There has been growing optimism that the Fed is approaching the end of its cycle of rate increases, but the latest data could cast doubt on the situation.