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The United States 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.
Nonfarm payrolls jumped 243,000, the Labour 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 hinted at underlying economic strength and lessened chances of further stimulus from the Federal Reserve.
"More pistons in the economic engine have begun to fire, pointing to accelerating economic growth. One of the happiest persons reading this job report is President Obama," said Sung Won Sohn, an economics professor at California State University Channel Islands.
The payroll gains were widespread -- from retail to temporary help, and from construction to manufacturing -- an indication the recovery was becoming more durable.
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 percentage point since August, to hold steady.
"I think this is a sign that maybe the economy is reaching that holy grail of a self-sustaining economic expansion," Stuart Hoffman, chief economist at PNC Financial Services in Pittsburgh, told Reuters Insider.
The outlook was further brightened by a separate report showing service sector activity quickened last month to a near one-year high. A gauge of service sector employment touched a six-year high.
The employment report contrasted with a fairly glum assessment of the economy offered by the Fed last week.
Officials at the central bank have been debating whether to buy more bonds -- a program dubbed QE3 -- to drive interest rates lower. It also raised doubts about the Fed's expectation that it could hold interest rates near zero at least through late 2014.
"At the very least this scales back QE3 (quantitative easing) odds. The surprisingly persistent decline in the unemployment rate also calls into question how firmly wedded the Fed is to the late-2014 rate guidance," said Michael Feroli, an economist at JPMorgan in New York.
DON'T MUCK IT UP
Obama welcomed the strong jobs report and urged Congress to extend a payroll tax cut and benefits for long-term unemployed, which expire at the end of this month.
"Now is not is not the time for self-inflicted wounds to our economy. I want to send a clear message for Congress. Do not slow down the recovery that we are on, don't muck it up," he said at a firehouse in Arlington, Virginia.
Republicans acknowledged the improvement in the labour market, but said the jobless rate was still too high.
"Our economy still isn't creating jobs the way it should be and that's why we need a new approach," said House Speaker John Boehner.
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. The level of employment is still 5.57 million from its pre-recession level.
But steady progress is being made. The economy added 60,000 more jobs in November and December 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 accelerated 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, citing still lackluster consumer confidence, income and spending growth.
While some said the jobless rate could drop below 8 percent by year end, others warned it would likely move up in the near-term as people who had given up the search for a job re-enter the workforce.
"For this to mark an upturn in the labor market, then businesses will have to continue to hire on this scale throughout the winter," said Kathy Bostjancic, director of macroeconomic analysis at the Conference Board in New York.
The unemployment rate has now declined for five straight months, although part of the drop reflects discouraged Americans giving up the hunt for 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 a near three-year low of 15.1 percent in January from 15.2 percent in December.
Revisions to the payrolls figures showed 180,000 more jobs were created last year than previously believed.
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 Labour 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.