The surprisingly robust report the government issued Friday also showed that hiring was far stronger in November and December than it had previously estimated. Employers added 414,000 jobs in November — the most in 17 years. December's gain was revised sharply up to 329,000 from 252,000.
Friday's data provided the most compelling evidence to date that 5 1/2 years after the Great Recession officially ended, the U.S. job market is finally enjoying the hiring and pay growth typical of a healthy recovery.
Average hourly wages soared 12 cents last month to $24.75 — the sharpest increase since 2008. Over the past 12 months, hourly pay, which has long been stagnant, has now risen 2.2 per cent. That is above inflation, which rose just 0.8 per cent in 2014.
The unemployment rate rose last month to 5.7 per cent from 5.6 per cent. But that occurred for a good reason: More than 1 million Americans — the most since January 2000 — began looking for jobs, though not all of them found work, and their numbers swelled the number of people counted as unemployed. The influx of job hunters suggested that Americans have grown more confident about their prospects.
"For the average American, it's certainly good news — 2015 is going to be the year of the American consumer," said Russell Price, senior economist at the financial services firm Ameriprise. "With job growth being strong, we're going to see a pickup in wages and salaries."
The resurgent job and pay gains make it more likely that the Federal Reserve will begin raising the short-term interest rate it controls by midyear. Indeed, investors responded to the better-than-expected jobs figures by selling U.S. Treasurys, sending yields up, a sign that many think a Fed rate hike might be more imminent than they thought before. The yield on the 10-year Treasury note rose to 1.93 per cent from 1.81 per cent shortly before the jobs report was released.
Stock prices rose modestly. The Dow Jones industrial average gained 51 points in late-morning trading.
A sharp drop in gas prices has held down inflation and boosted Americans' spending power. Strong hiring also tends to lift pay as employers compete for fewer workers. A big question is whether last month's jump in wages can be sustained.
Job gains have now averaged 336,000 for the past three months, the best three-month pace in 17 years. Just a year ago, the three-month average was only 197,000.
"The labour market was about the last thing to recover from the Great Recession, and in the last six months it has picked up steam," said Bill Hampel, chief economist at the Credit Union National Association. "The benefits for the middle class are now solidifying."
At the start of the year, 20 states raised their minimum wages, a trend that might have contributed to January's sharp overall pay gain. Some large companies, including Aetna and the Gap, have also announced wage increases for their lowest-paid employees.
The stepped-up hiring in January occurred across nearly all industries. Construction firms added 39,000 jobs and manufacturers 22,000. Retail jobs jumped by nearly 46,000. Hotels and restaurants added 37,100, health care 38,000.
The Fed has been monitoring wages and other job market data as it considers when to begin raising its short-term rate from a record low near zero. The Fed has kept rates at record lows for more than six years to help stimulate growth.
Steady economic growth has encouraged companies to keep hiring. The economy expanded at a 4.8 per cent annual rate during spring and summer, the fastest six-month pace in a decade, before slowing to a still-decent 2.6 per cent pace in the final three months of 2014.
There are now 3.2 million more Americans earning paychecks than there were 12 months ago. That additional cash tends to boost consumer spending, which drives about 70 per cent of economic growth.
The accelerated hiring, along with sharply lower gasoline prices, has boosted Americans' confidence and spending power. Consumer confidence jumped in January to its highest level in a decade, according to a survey by the University of Michigan. And Americans increased their spending during the final three months of last year at the fastest pace in nearly nine years.
A more confident, free-spending consumer could lend a spark that's been missing for most of the 5 1/2-year-old economic recovery. Americans have been largely holding the line on spending and trying to shrink their debt loads. Signs that they are poised to spend more have boosted optimism that the economy will expand more than 3 per cent this year for the first time in a decade.
One sector that's benefited from consumers' increased willingness to spend has been the auto industry. Auto sales jumped 14 per cent in January from the previous year, according to Autodata Corp. Last month was the best January for sales in nine years.
AP Economics Writers Josh Boak and Paul Wiseman contributed to this report.