Nonfarm payrolls grew by 200,000 in January and the unemployment rate was 4.1 percent, while wages saw their biggest jump since the end of the Great Recession, the Bureau of Labor Statistics said in a closely watched report Friday.
Economists surveyed by Reuters had been expecting jobs growth of 180,000 and an unemployment rate of 4.1 percent. A broader measure of unemployment that includes discouraged workers and those holding part-time jobs for economic reasons edged higher to 8.2 percent, the highest level since September.
In addition to the solid payroll growth, average hourly earnings were up 0.3 percent for the month, matching estimates and reflecting an annualized gain of 2.9 percent. That was the best since mid-2009 as the two-year economic slump was coming to a close. However, the average work week fell two-tenths to 34.3 hours.
Markets were unimpressed with the report, with stock futures continuing to point to a sharply lower open on Wall Street and bond yields rising. The 30-year bond got more clearance from the 3 percent level, hitting 3.06 percent, the highest since March 2017. The benchmark 10-year yield rose to 2.83 percent, a four-year high.
"Overall, it was really fabulous," said JJ Kinahan, chief market strategist at TD Ameritrade. "People are just looking for an excuse to sell."
The prospect of rising interest rates due to inflation pressures could be just that catalyst, he said.
"We've all talked for many years saying we're going to raise rates, that raising rates will be good for the economy," Kinahan added. "I find it quite odd that the narrative around the market has changed quite a bit."
Traders widely expect the Federal Reserve in March to approve a quarter-point hike in its benchmark interest rate, which is tied to most consumer rates like credit cards and adjustable-rate loans. The market expects another in June and a third by the end of the year, according to the CME's calculations of action in the fed funds futures market.
The payroll numbers come amid an expected acceleration in growth for the U.S. economy. The Atlanta Federal Reserve is expecting a GDP gain of 5.4 percent in the first quarter, which would be the best increase since the recovery began in mid-2009.
Within the jobs report, Wall Street and policymakers are watching wage numbers closely. While job gains have been solid and consistent, salary growth has been elusive. This report could change the narrative and might push the Fed to get more aggressive with interest rate hikes.
The report comes after a disappointing 160,000 in December (revised up from 148,000) and two days after ADP said private payrolls increased by 234,000. The November gain of 252,000 was cut from 252,000 to 216,000, making the net from the two revisions minus-24,000.
The household survey showed an even bigger gain in employment, with a gain of 409,000. The rolls of the unemployed grew by 108,000.
Construction reported by the biggest gain by sector with 36,000. Bars and restaurants added 31,000 and health care was up 21,000. Manufacturing also showed a gain of 15,000 and durable goods-related industries added 18,000.
"Perhaps the biggest positive surprise on hiring is the continued surge for the goods-producing sector with manufacturing and construction leading the way," said Mark Hamrick, Bankrate.com's senior economic analyst.
While the labor force participation rate held steady at 62.7 percent, those counted as not in the labor force popped, jumping 153,000 to 95.7 million.
WATCH: What a wage increase means to investors.