The nation's unemployment rate unexpectedly declined last month to 4.7 percent from 4.9 percent, the lowest level since mid-2001, as the job market continued to strengthen, a Labor Department report indicated yesterday.
"The economic expansion has matured to the point where corporate America feels it's safe to staff up," said Ken Mayland of Clear View Economics.
The decline in the jobless rate was welcome news for most of the country. But on Wall Street, which has recently begun to hope the Federal Reserve is done or nearly done with its long series of interest-rate increases, there were worries that the latest data might spur the central bank to continue raising rates.
Strong demand for workers can send wages higher, fueling inflationary pressures. And yesterday's upbeat employment news, said JPMorgan Chase & Co. economist Haseeb Achmed, "reinforces the case for continued Fed tightening."
The decline in unemployment is "probably going to spook markets more than any other recent data," echoed Eugenio Aleman, Wells Fargo & Co. senior economist.
The jobs report jarred the stock and bond markets yesterday morning, but the impact eased as the day progressed. The Dow Jones industrial average dropped 58 points to close at 10,793.
The Labor Department's closely followed monthly report has two elements: the unemployment data and an in-depth survey, conducted separately, of how many net jobs U.S. employers collectively create or shed.
For almost a year now, the unemployment rate has held within a tight range of 4.9 percent to 5.1 percent. And most experts had expected January's jobless figure to either remain unchanged at 4.9 percent or rise back to 5 percent.
Instead, it dropped to the 4 1/2 -year low of 4.7 percent.
Economists said a portion of the unexpected decline probably reflects January's unusually warm weather, which bolstered employment in the construction and restaurant sectors.
But some of the improvement is structural as well. "This was a very solid report," said Joel Naroff of Naroff Economic Advisors. "The labor market is firming and workers are beginning to see their wages improve."
Unemployment among African-American workers declined from 9.3 percent to 8.9 percent; black joblessness stood at 10.5 percent 12 months ago.
According to the report, U.S. employers added a net 193,000 jobs in January, short of the roughly 250,000 jobs many economists had been predicting.
However, that shortfall was muted because the government also revised upward the job-creation data it previously issued for November and December, adding an aggregate 81,000 to the number of jobs created in those months.
The revised data mean the economy has been creating about 229,000 jobs monthly over the past three months, an extremely robust performance.
The latest report also showed that workers' average hourly earnings rose a slightly stronger-than-expected 0.4 percent last month.
DanskeBank economist Peter Possing Anderson fretted about the size of the hourly earnings upturn, calling it "further evidence the labor market is really hot at the moment."
He added that "rising wage pressures are very likely to feed through into inflation during 2006."
But Merrill Lynch & Co. economist David Rosenberg cautioned against reading too much into one month's jobs data.
"Remember," he told investors in a note, "this was one of the warmest Januarys ever recorded, which skewed practically everything from home heating oil prices, to the Gap's springtime clothing sales, to today's jobs numbers."
James P. Miller writes for the Chicago Tribune.