US hires more people
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 labor 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 per cent. Average hourly earnings rose 0.3 per cent in January to $26.74, building on December’s solid 0.4 per cent gain.

That boosted the year-on-year increase in average hourly earnings to 2.9 per cent, the largest rise since June 2009, from 2.7 per cent in December. Workers, however, put in fewer hours last month likely because of bitterly cold weather.

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.

“The acceleration in average hourly earnings growth punches a hole in the narrative that wage growth remains lackluster,” said Scott Anderson, chief economist at Bank of the West in San Francisco. “The Goldilocks view of inflation is being sorely challenged right now.”

Fed officials on Wednesday expressed optimism that inflation will rise toward the central bank’s target this year. Policymakers, who voted to keep interest rates unchanged, described the labor market as having “continued to strengthen,” and economic activity as “rising at a solid rate.”

US financial markets have priced in a rate hike in March. Prices for US Treasuries fell, with the yield on the benchmark 10-year note hitting a four-year high as investors worried about high inflation. The dollar rose against a basket of currencies on the data while US stocks were trading lower.

The unemployment rate dropped seven-tenths of a percentage point in 2017 and economists expect it to hit 3.5 per cent by the end of the year. Economists say job gains are being driven by buoyant domestic and global demand.

Some worry that 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, could cause the economy, already operating near full capacity, to overheat.

President Donald Trump and his fellow Republicans have cast the fiscal stimulus, which includes a reduction in the corporate income tax rate to 21 per cent from 35 per cent, as creating jobs and boosting economic growth.

“If the labor market is this strong and the tax cuts have yet to kick in, what will it look like when households and businesses actually start spending the money?” said Joel Naroff, chief economist at Naroff Economic Advisors in Holland Pennsylvania. “No good economy goes unpunished and the punishment may already be starting to be meted out.”