The U.S. economy added 467,000 jobs last month, a much better-than-expected job market performance amid the spike in coronavirus cases linked to the Omicron variant.
The surprise increase in payrolls defied forecasts by economists polled by Bloomberg, who predicted gains of 150,000 jobs. This will fuel expectations that the Federal Reserve will act more aggressively than expected to tighten monetary policy to stamp out inflation.
It will also come as relief for the White House, which had warned that job growth could be temporarily affected by the jump in Covid-19 infections.
In addition to the jump in payrolls in January, there were also significant upward revisions to data from previous months, while wage growth also rose more than expected.
The jobless rate climbed to 4% despite strong increases, from 3.9% previously.
US government bonds sold off after Friday’s jobs report amid fears that inflation could continue to accelerate. The yield on two-year Treasury bills, which is sensitive to monetary policy expectations, jumped 0.09 percentage points to 1.28%, the highest level since the start of 2020.
The data released Friday by the Bureau of Labor Statistics was gathered at the height of the Omicron outbreak in the United States, which has fueled record numbers of Covid cases, hospital admissions and deaths.
Top economics officials in the Biden administration had sought to move ahead of Friday’s numbers, with Brian Deese, director of the National Economic Council, saying this week that the January jobs data “might look a little strange.”
The White House has touted the robust job market recovery as one of President Joe Biden’s most significant achievements in his first year in office, which has otherwise been beset by legislative setbacks. Despite the passage of a bipartisan infrastructure bill, his landmark $1.75 billion spending plan to build back better has stalled in Congress.
“It turns out that the spike in Omicron cases coincided with when the payroll data was collected,” Jared Bernstein, a member of Biden’s Council of Economic Advisers, told CNN this week. “If you weren’t at work, if you were on unpaid leave, you’re not counted as being on the payroll.”
Before the winter wave of coronavirus infections, employers were already struggling to fill their ranks as fears of catching Covid and childcare issues deterred many people from joining the workforce.
The number of job openings has increased accordingly, with more than 10 million reported in the last month of 2021. This translates to 1.7 job openings for every unemployed person, the highest since the US government began collecting the data two decades ago.
Some workers have sought to capitalize on the demand for new hires and quit their jobs in search of better paying positions. A total of 4.3 million Americans quit smoking in December, slightly less than November’s record high of 4.5 million.
Labor costs in the United States have, in turn, risen sharply as employers raise wages and benefits to compete for talent.
The Federal Reserve is charting the course for its first interest rate hike since 2018 at its next policy meeting in March. Jay Powell, the Fed Chairman, had said there could be a “slowdown” in the economy because of Omicron, but said any weakness should be “temporary”.
“We think the underlying strength in the economy should show up fairly quickly thereafter,” he said at the news conference following the January meeting of the Federal Open Market Committee.
High inflation has forced the Fed to reduce its monetary policy support much faster than initially expected. Senior officials also left the door open for a series of more aggressive interest rate hikes this year or even a half-percentage-point rate hike, as opposed to the quarter-point increases that have become the norm.
The central bank is also expected to start trimming its balance sheet by nearly $9 billion soon after the first interest rate adjustment in a bid to further tighten its monetary policy settings.
Additional reporting by Adam Samson