US job growth surged in January and wages increased further, recording their largest annual gain in more than 8-1/2 years, bolstering expectations that inflation will push higher this year as the labour market hits full employment.
Nonfarm payrolls jumped by 200,000 jobs last month after rising 160,000 in December, the Labor Department said on Friday.
The unemployment rate was unchanged at a 17-year low of 4.1 percent. Average hourly earnings rose 0.3 percent in January to $26.74, building on December's solid 0.4 percent gain.
That boosted the year-on-year increase in average hourly earnings to 2.9 percent, the largest rise since June 2009, from 2.7 percent in December. Workers, however, put in fewer hours last month. The average workweek fell to 34.3 hours, the shortest in four months, from 34.5 hours in December.
The robust employment report underscored the strong momentum in the economy, raising the possibility that the Federal Reserve could be a bit more aggressive in raising interest rates this year. The US central bank has forecast three rate increases this year after raising borrowing costs three times in 2017.
"It definitely makes it a bit more likely that the Fed will have to do more than the three hikes that they're currently planning for this year," said Luke Bartholomew, investment strategist at Aberdeen Standard Investments.
Fed officials on Wednesday expressed optimism that inflation would rise toward its target this year. Policymakers, who voted to keep interest rates unchanged, described the labour market as having "continued to strengthen," and economic activity as "rising at a solid rate."
Economists say job gains are being driven by buoyant domestic and global demand.
Given that the labour market is almost at full employment, economists saw little boost to job growth from the Trump administration's $1.5 billion tax cut package passed by the Republican-controlled US Congress in December, in the biggest overhaul of the tax code in 30 years.
President Donald Trump and his fellow Republicans have cast the fiscal stimulus, which includes a reduction in the corporate income tax rate to 21 percent from 35 percent, as creating jobs and boosting economic growth.
According to outplacement consultancy firm Challenger, Gray & Christmas, only seven companies, including Apple, had announced plans to add roughly a combined 37,000 new jobs in response to the tax cuts as of the end of January.
The economy needs to create 75,000 to 100,000 jobs per month to keep up with growth in the working-age population.
JOB GAINS SEEN SLOWING
Job growth is expected to slow this year as the labour market hits full employment. Companies are increasingly reporting difficulties finding qualified workers, which economists say will force some to significantly raise wages as they compete for scarce labour.
The unemployment rate dropped seven-tenths of a percentage point in 2017 and economists expect it to hit 3.5 percent by the end of the year.
Employment gains were widespread in January. Manufacturing payrolls increased by 15,000 last month after rising 21,000 in December. The sector is being supported by strong domestic and international demand. A weak dollar is also providing a boost to manufacturing by making US-made goods more competitive on the international market.
Hiring at construction sites picked up last month despite unseasonably cold weather. Construction payrolls increased by 36,000 jobs after rising 33,000 in December. Retail employment rebounded by 15,400 jobs in January after slumping 25,600 the prior month.
Government employment increased by 4,000 jobs following two straight months of declines. There were also increases in payrolls for professional and business services, leisure and hospitality as well as healthcare and social assistance.