WASHINGTON, (Reuters) – The economy created jobs at the fastest pace in nine months in January and the unemployment rate unexpectedly dropped to a near three-year low, giving a boost to President Barack Obama as campaigning heats up ahead of November elections.
Nonfarm payrolls jumped 243,000, the Labor Department said on Friday, as factory jobs grew by the most in a year. The jobless rate fell to 8.3 percent – the lowest since February 2009 – from 8.5 percent in December.
The gain in employment was the largest since April and it far outstripped the 150,000 predicted in a Reuters poll of economists. It could lessen the likelihood of further action from the Federal Reserve to spur a stronger recovery.
“If six months ago, (I) told you the unemployment rate was going to be 8.3 percent when all those vampire economists…were telling us the economy was about to die again…you’d have told me I was a crackpot,” Stuart Hoffman, chief economist at PNC Financial Services in Pittsburgh, told Reuters Insider.
The payroll gains were widespread – from retail to temporary help, and from construction to manufacturing.
A survey of households showed the unemployment rate declined even as new job seekers flooded into the labor force. Economists had expected the jobless rate, which has now fallen 0.8 percentgage point since August, to hold steady.
“The report was much better than expected in terms of indicating fundamental strength in the economy,” said Pierre Ellis, senior economist at Decision Economics in New York.
U.S. stocks opened higher on the report, while U.S. Treasury debt prices fell sharply. The dollar rose against the yen.
The report contrasted with a fairly glum assessment of the economy offered by the Fed last week.
Officials at the U.S. central bank have been debating whether to buy more bonds – a program dubbed QE3 – to drive interest rates lower. After a policy meeting last week, they said they would likely hold overnight interest rates near zero at least through late 2014.
“This is the kind of data that will challenge the Fed’s wisdom of putting a late 2014 date on prospective tightening,” said Alan Ruskin, head of G10 currency strategy at Deutsche Bank in New York. “The data plays strongly against QE3, although the Fed will surely keep it in the wings.”
REVISIONS ALSO SHOW STRENGTH
The tenor of the report was strengthened by revisions to November and December data, which showed 60,000 more jobs were created during those months than previously reported.
In addition, average hourly earnings rose four cents, which should help to support spending. The report suggested that expectations of a slowdown in U.S. economic growth in the first quarter were not yet impacting on companies’ hiring decisions.
Employment in the private sector surged 257,000 – the largest gain since April. Government payrolls fell 14,000, the least since September.
U.S. economic growth quickened to a 2.8 percent annual rate in the final three months of 2011, but it was widely expected to slow as businesses ease back on efforts to rebuild inventories and exports slip amid a likely recession in Europe.
Some economists cautioned that January’s jobs figures could overstate the pulse of the recovery.
“Consumer confidence, income and spending remain lackluster,” said Kathy Bostjancic, director of macroeconomic analysis at the Conference Board in New York. “For this to mark an upturn in the labor market, then businesses will have to continue to hire on this scale throughout the winter.”
While employment growth has quickened there are no jobs for three out of every four unemployed people and 19.3 million Americans are either out of work or underemployed.
Still, there are signs the economy continues to enjoy decent momentum.
A separate report on Friday showed service sector activity quickened last month to a near one-year high, auto sales have been buoyant, factory activity strong and new claims for jobless benefits have been trending lower.
The unemployment rate has now declined for five straight months, partly because of unemployed workers giving up the hunt for a job but also because people are finding work.
A broad measure of unemployment, which includes people who want to work but have stopped looking and those working only part time but who want more work, slipped to 15.1 percent in January from 15.2 percent in December.
Annual revisions to the payrolls figure showed job growth had been stronger than previously believed in the year through last March, and the March payroll level was revised up by 165,000.
Mild winter weather boosted employment last month in construction, which added 21,000 jobs after a 31,000 increase in December. Manufacturing payrolls surged 50,000, the largest gain in a year, after rising 32,000 the prior month.
Overall, the goods-producing sector added 81,000 jobs last month, the most since January 2006.
Transportation and warehousing employment increased 13,100 and courier jobs only fell 1,500. Last month, the Labor Department reported a large increase in courier jobs in December, but revisions showed they actually declined.
Retail employment rose 10,500 after gaining 6,200 in December. Temporary help services jumped 20,100 after rising 8,300, a potentially good sign for future permanent hiring.