(Bloomberg) -- The US labor market burned red-hot in January as hiring unexpectedly surged and unemployment fell to a 53-year low, defying recession forecasts and adding pressure on the Federal Reserve to keep raising interest rates.

Nonfarm payrolls increased 517,000 last month after an upwardly revised 260,000 gain in December, a Labor Department report showed Friday. The unemployment rate dropped to 3.4%, the lowest since May 1969 and average hourly earnings grew at steady clip.

Hiring topped all economist estimates, putting to rest any concerns that a manufacturing downturn and layoffs in the technology sector translate into weaker hiring across the country — at least for now. 

Payroll gains were broad-based, as factories, retailers and restaurants added jobs. Even construction increased employment amid a slump in housing. The robust demand for labor also pulled in traditionally sidelined workers, including Black Americans, whose jobless rate fell to a near-record low of 5.4%.

“A stunningly strong jobs report raises serious doubts about the economy slipping into recession and the Fed ending its tightening cycle this spring,” Sal Guatieri, senior economist at BMO Capital Markets, said in a note.

Earlier this week, stocks and Treasuries rallied as investors saw greater hope of a near-term Fed pause. Friday’s report erased some of that optimism, as the S&P 500 declined and Treasury yields surged.

The surprisingly strong labor market now makes Fed Chair Jerome Powell’s job trickier. While the central bank’s aggressive pace of rate hikes has cooled some sectors of the economy, it hasn’t been enough to stop or even slow employers from hiring.

Another report Friday also suggested that consumer demand for services bounced back in January after some pullback at the end of last year. 

Read More: Blockbuster Jobs Report to Push Fed to Hike and Keep Rates High

Other measures have shown wage growth moderating, like the employment cost index and unit labor costs out earlier this week.

The surprising strength of the jobs report was reflected in a 1.5% increase in a gauge that includes payrolls, hours worked and hourly earnings. That marked the largest monthly advance since 2020 and suggests sufficient spending power for American workers going forward.

How long rates stay elevated depends in large part on the trajectory of hiring and wage growth. Job openings unexpectedly surged in December and applications for unemployment benefits remain historically low — a testament to the labor market’s enduring strength, but Powell hinted that could come undone as the Fed keeps working to cool price pressures.

Friday’s report included an annual update to the population controls used in the household survey data, which means the participation and unemployment figures aren’t directly comparable to the previous month.

The labor force participation rate — the share of the population that is working or looking for work — climbed to 62.4%, and the rate for workers ages 25-54 also increased. Removing the effects of those adjustments, the Labor Department said the overall participation rate was unchanged.

What Bloomberg Economics Says...

“If it seems too good to be true, that’s because it is — the gain is mostly due to seasonal factors. Still, it can’t be denied that the labor market remains tight. The Fed likely won’t place too much weight on this report in formulating policy.”

— Anna Wong, economist

The report also contained an yearly update to the establishment survey that produces the payrolls figures. Job growth was revised higher for the final six months of 2022.

While some economists say the strong data may have been distorted by the seasonal factors, Omair Sharif of Inflation Insights LLC said the payrolls figures looked like “a pretty clean read.”

Corporate America’s Perspective

“The sector does face challenges relative to capacity and talent and the record low unemployment. However, we continue to see and experience strong and consistent overall applicant flow to support our store hiring with the typical seasonality.” — Frank Britt, chief reinvention officer at Starbucks Corp. on Feb. 2 earnings call

“We see continued labor pressure with different market dynamics impacting hiring and increasing wages for certain roles primarily in our manufacturing organization.” — Tom Polen, CEO of Becton Dickinson and Co. on Feb. 2 earnings call

“We’re not planning layoffs. We are limiting our hiring to only the most strategically important role and we’ll use attrition to help manage overall headcount.” — Mary Barra, CEO of General Motors Co. on Jan. 31 earnings call

“We’ve had no trouble hiring people. None.” — David Calhoun, CEO of Boeing Co. on Jan. 25 earnings call

--With assistance from Chris Middleton, Reade Pickert and Liz Capo McCormick.

(Corrects a story from Feb. 3 to show the Black unemployment rate neared a record low, but didn’t match it, in the fourth paragraph.)

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