The U.S. economy added new jobs in January well above expectations, signaling strength in the labor market. This could strengthen the Federal Reserve's case for delaying interest rate cuts.
Nonfarm payrolls increased by 353,000 last month, according to data from the Bureau of Labor Statistics, up from an upwardly revised total of 333,000 in December. This was significantly more than expected, at 187,000.
The Bureau of Labor Statistics said in a statement that December's upward adjustment was the result of the annual baseline process and seasonal adjustment factors.
Job growth in sectors such as professional and business services, health care and retail helped offset employment declines in mining, quarrying and oil and gas extraction.
The unemployment rate in January was 3.7%, the same as the previous month. Meanwhile, average hourly wages grew 0.6% month over month, accelerating from December's 0.4% increase and faster than expected at 0.3%.
Fed officials were watching for signs of a slowdown in workplace demand, which in theory could curb wage growth and thus ease inflationary pressures. January's extraordinary numbers will therefore influence how the central bank approaches possible interest cuts in the coming months.
Earlier this week, Federal Reserve Chairman Jerome Powell blunted expectations of an early cut, saying such a scenario was "not his baseline scenario." He said. He added that the Fed would need further evidence of rising prices before it would begin to consider cuts.
The comments come after the Fed, after holding interest rates at 5.25% to 5.50% for more than 20 years, removed from its official statement any mention of a possible further rise if needed.
The market then readjusted its bets, taking into account that CME Group's Fed Watch Tool showed odds for a 25-point lower rate for the first time in May. The hopes that were fueled by the Fed's harsh remarks in the past have shown significant expectations that a cut could be made in March, with a high 60%.
After Friday's data, stock futures were mixed and indices tracking the U.S. dollar index rose. Interest rate sensitive 2-year U.S. Treasury yields and key 10-year yields, which typically move inversely with prices, both rose.