Government shutdown lifts unemployment rate to 4% from 3.9%

The numbers: The U.S. gained 304,000 new jobs in January — the biggest increase in almost a year — in another show of strength for an economy that’s still growing soundly even in the face of more headwinds.

Economists polled by MarketWatch had expected a modest gain of 172,000 nonfarm jobs, but mainly because hiring in December had seemed so strong.

Instead the government slashed its original estimate of new jobs in December to 222,000 from 312,000 as part of an annual update based on newly available information. That’s the largest monthly revision since 2010.

Still, the economy has added an average of 241,000 jobs a month since November, marking one of the best stretches during a nearly 10-year-old economic expansion. And employment gains in 2018 were the strongest in three years.

The unemployment rate, meanwhile, edged up to 4% from 3.9%. The jobless rate has been creeping higher since hitting a half-century low of 3.7% last fall.

The Labor Department said the government shutdown did contribute to the higher jobless rate, but it had “no discernible impacts” on the surge in hiring in January.

The average wage paid to American workers rose 3 cents to $27.56 an hour. The increase in hourly wage over the past 12 months dipped to 3.2% after holding at a postrecession high of 3.3% in the prior three months, revised figures show.

The tight labor market has forced businesses to offer higher pay and benefits to attract or retain workers, but so far it hasn’t contributed much to inflation. That’s keeping the Federal Reserve from raising interest rates aggressively.

What happened: The increase in hiring in January was widespread.

Companies that provide leisure and hospitality — hotels, restaurants, gambling, recreation — added 74,000 jobs in a surprisingly strong gain.

Construction firms took on 52,000 new workers, particularly in fields geared toward commercial building. Health-care providers hired 42,000 workers. Transportation and delivery companies beefed up payrolls by 27,000. And retailers increased staffing by 21,000.

The only major industry to shed jobs: information services such as media and entertainment. A slew of news providers such as Gannett GCI, +0.09%  and Buzzfeed laid off workers last month.

Big picture: The economy is facing more “crosscurrents,” but the best labor market in decades is shielding the U.S. from major harm. Consumers are spending at healthy clip and businesses are still hiring to keep up with rising sales.

So long as that continues the U.S. is sure to avoid its first recession since 2007-2009.

The Fed is worried enough, though, that it’s no longer pledging to raise U.S. interest rates again this year.

Read: ‘Patient’ Fed on hold after Powell says case for higher rates ‘weakens’

Market reaction: “The Fed’s new dovish, “patient”, stance certainly isn’t a reflection of any significant cooling in the labor market. Headline payrolls growth blew past expectations with a 304,000 gain in January,” said economist Andrew Grantham of CIBC World Markets.

“Certainly, the economy has slowed, and that will undoubtedly be apparent in other data in the coming weeks,” said Jim Baird, chief investment officer at Plante Moran Financial Advisors. “Still, the jobs market remains a bright spot. Employers are still hiring at a strong pace. That’s good news for the consumer sector, and ultimately good news for the economy.”

Market reaction: The Dow Jones Industrial Average DJIA, +0.64% and S&P 500SPX, +0.34% were set to open slightly higher in Friday trades. Stocks have rallied over the past month and poised to move higher in the short run after the Federal Reserve backtracked on previous plans to raise interest rates.

The 10-year Treasury yield TMUBMUSD10Y, +1.82% was little changed at 2.65%. Yields have tumbled since late last year, when they hit a seven-year high of 3.23%.