(Bloomberg) -- US hiring surged in January and the jobless rate fell to a 53-year low, showcasing an unexpectedly hot labor market that will likely bolster the Federal Reserve's resolve to extend its run of interest-rate hikes.
Nonfarm payrolls increased 517,000 last month after an upwardly revised 260,000 gain in December, a Labor Department report showed Friday. The unemployment rate dropped to 3.4%, the lowest since May 1969 and average hourly earnings grew at steady clip.
The figure beat all estimates in a Bloomberg survey of economists, which called for a 188,000 gain in payrolls and for the unemployment rate to rise to 3.6%.
Treasury yields surged while the S&P 500 index futures tumbled and the dollar rose. Swaps traders boosted where they see the peak of the Fed's hiking cycle to nearly 5% around midyear.
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Hiring was broad-based across sectors, led by leisure and hospitality, professional and business services and health care. Government employment increased by the most since July, which reflected the return of University of California workers after the end of a strike.
The figures highlight the resilience of the job market despite rising borrowing costs, a pullback in consumer demand and an overall uncertain economic outlook. Demand for workers continues to outpace supply, threatening to keep wage growth strong and fan inflation further.
That's been a key frustration for the Fed, outlined by Chair Jerome Powell on Wednesday after the central bank slowed its pace of interest-rate hikes to a quarter point. Even so, Powell expressed optimism that officials can still pull off a so-called soft landing, in which they quell inflation without putting millions of people out of work.
In order to do so, the Fed has said it's key to ease wage gains. The jobs report showed average hourly earnings rose 0.3% from December and up 4.4% from a year earlier. That's an easing from the prior month, which was revised higher. At the same time, the average workweek increased to 34.7 hours, the highest since March.
Other measures have shown wage growth moderating, like the employment cost index and unit labor costs out earlier this week.
Corporate America's Perspective
“The sector does face challenges relative to capacity and talent and the record low unemployment. However, we continue to see and experience strong and consistent overall applicant flow to support our store hiring with the typical seasonality.” — Frank Britt, chief reinvention officer at Starbucks Corp. on Feb. 2 earnings call
“We see continued labor pressure with different market dynamics impacting hiring and increasing wages for certain roles primarily in our manufacturing organization.” — Tom Polen, CEO of Becton Dickinson and Co. on Feb. 2 earnings call
“We're not planning layoffs. We are limiting our hiring to only the most strategically important role and we'll use attrition to help manage overall headcount.” — Mary Barra, CEO of General Motors Co. on Jan. 31 earnings call
“We've had no trouble hiring people. None.” — David Calhoun, CEO of Boeing Co. on Jan. 25 earnings call
How long interest rates stay elevated depends in large part on the trajectory of hiring and wage growth. Job openings unexpectedly surged in December and applications for unemployment benefits remain historically low — a testament to the labor market's enduring strength, but Powell hinted that could come undone as the Fed keeps working to cool price pressures.
Friday's report included an annual update to the population controls used in the household survey data, which means the participation and unemployment figures aren't directly comparable to the previous month.
The labor force participation rate — the share of the population that is working or looking for work — climbed to 62.4%, and the rate for workers ages 25-54 also increased. Removing the effects of those adjustments, the Labor Department said the overall participation rate was unchanged.
Despite US employers cutting the most jobs last month in two years, overall layoffs remain historically low.
--With assistance from , and .
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