The U.S. economy added far more new jobs than forecast last month, the Labor Department said Friday, ripping past Street forecasts and testing the market's assumption that inflation will slow sharply into the first few months of the year.
The Bureau for Labor Statistics said 517,000 new jobs were created last month, blasting the Street consensus forecast of a 185,000 gain. Private payrolls were up 443,000, the BLS said, as the unemployment rate slipped to 3.4%, back to the lowest levels since 1969.
The BLS also revised its December jobs addition estimate to 260,000 from its original estimate of a 223,000 net gain.
The BLS noted that hourly wages were up 0.3% on the month, a similar level to December and around half of the November pace, a tally that matched Street forecasts. On a year-on-year basis, wages were up 4.4%, compared to the 4.6% pace recorded in December, the BLS said, and the Street forecast of 4.3%.
"Jobs gains in January were astronomically high, but something isn't quite right when you look under the hood. January's data was heavily impacted by annual updates to the BLS methodology, making monthly comparisons less meaningful for understanding where we are in the employment cycle," said Morning Consult chief economist John Leer.
"The pandemic dramatically affected the number and types of businesses operating in the U.S., and the BLS is still trying to understand how to account for those changes in its monthly releases," he added. "I wouldn't totally throw out today's data, but I also wouldn't take it at face value."
U.S. stocks traded lower following the data release, with the Dow Jones Industrial Average falling around 125 points and those linked to the S&P 500 giving back 32 points from last night's gain. The Nasdaq was down 122 points.
Benchmark 10-year Treasury note yields jumped 9 basis points to 3.490% while 2-year notes surged 9 basis points to 4.232%.
The CME Group's FedWatch suggests an 94.5% chance of a 25 basis point rate hike in March, up from around 82% prior to the data release and just 59.2% a month ago.
The U.S. dollar index, which tracks the greenback against a basket of its global peers, was marked 0.8% higher at 102.584.
Earlier this week, payroll processing group ADP said private hiring slowed sharply, to just 106,000 new positions last month, while BLS data showed new applications for unemployment benefits fell by 3,000 to 185,000 over the period ending on January 28.
The Challenger job cuts report for December, however, said layoffs rose 136% from last year to just under 103,000. JOLTs data for the month of December, however, indicated around 11 million open positions, a level that could feed in to pay gains over the coming months.
