U.S. job growth blew past expectations in January as the economy brushed off a record-breaking surge in COVID-19 cases nationwide that threatened to sideline millions of workers and kept many consumers at home.
The Labor Department said in its monthly payroll report released Friday that payrolls in January rose by 467,000, easily topping the 150,000 jobs gained forecast by Refinitiv economists. The unemployment rate, which is calculated based on a separate survey, ticked up slightly to 4% (the increase is largely because the labor force participation rate climbed to 62.2%, the highest level since the pandemic began in February 2020).
The surprise gain comes after the Biden administration spent the week publicly bracing for an ugly report that officials warned could show the economy actually lost jobs last month. But COVID-19 cases have eased in recent weeks, with the seven-day moving average falling to 596,860, down 20% from the prior week, according to the Centers for Disease Control and Prevention.
"We created 467,000 jobs in January. That’s more than 6.6 million jobs since I took office," President Biden tweeted on Friday morning. "2021 was the greatest year of job creation under any president in history."
Job gains were broad-based, with the biggest increases in leisure and hospitality (151,000), professional and business services (86,000) and retail (61,000).
Economists expect job growth to climb even higher in the coming months as the omicron variant recedes from public life.
Businesses are eager to onboard new employees and are raising wages in order to attract workers as they confront a labor shortage. There are roughly 10.9 million open jobs – a near-record – while the pace of layoffs was moderate. Friday's payroll report also painted a brighter employment picture in 2021, with major upward revisions to the jobs figure in December (510,000, up from the initially reported 199,000) and November (647,000, up from the initially reported 249,000).
"The job market started off the new year on the right foot with payroll gains, indicating the threat of omicron is sinking into the shadows," said Daniel Zhao, senior Glassdoor economist. "Today’s report signals that the job market recovery is plowing forward, despite omicron headwinds. We remain on track for recovery, even as the pandemic continues on."
Millions of workers are seeing the largest pay gains in years, as companies compete with one another for a limited number of employees: Wages climbed 5.7% in January from the previous year, nearly double the prepandemic average of 3%.
Many of those gains have been eroded, however, by the hottest inflation in nearly four decades that has pushed the price of everyday necessities like gasoline, clothing and food significantly higher.
The rising prices have been bad news for Biden, who has seen his approval rating plunge as inflation climbs higher. It has also forced the Federal Reserve to adopt a more aggressive policy trajectory in order to combat the raging inflation: Central bank policymakers have signaled they could begin raising interest rates as soon as March, once they conclude their massive bond-buying program. Fed Chairman Jerome Powell has also not ruled out the possibility of a rate increase at every meeting for the remainder of the year.
Economists said that Friday's report, and the resilience of the U.S. economy in the face of the virus, likely solidified the Fed's plans to raise rates next month – and opens the door to a larger, 50-basis rate hike.
"A better-than-expected jobs report only fuels the Fed’s fire to raise rates, and act quickly," said Mike Loewengart, managing director of investment strategy at E*Trade. "While they’ve already signaled that the labor market is in a good place, there was potential for omicron to derail that progress — and that just doesn’t seem to be the case. So with the market typically unwelcoming of news that could accelerate the pace of action from the Fed, we could see some volatility."