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By Lucia Mutikani
February 3, 2012 1:28 PM EST
The United States created jobs at the fastest pace in nine months in January and the unemployment rate unexpectedly dropped to a near three-year low, giving a boost to President Barack Obama.
Nonfarm payrolls jumped 243,000, the Labour Department said on Friday, as factory jobs grew by the most in a year. The jobless rate fell to 8.3 percent - the lowest since February 2009 - from 8.5 percent in December.
The gain in employment was the largest since April and it far outstripped the 150,000 predicted in a Reuters poll of economists. It hinted at underlying economic strength and lessened chances of further stimulus from the Federal Reserve.
"More pistons in the economic engine have begun to fire, pointing to accelerating economic growth. One of the happiest persons reading this job report is President Obama," said Sung Won Sohn, an economics professor at California State University Channel Islands.
The payroll gains were widespread - from retail to temporary help, and from construction to manufacturing - an indication the recovery was becoming more durable.
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A survey of households showed the unemployment rate declined even as new job seekers flooded into the Labour force. Economists had expected the jobless rate, which has now fallen 0.8 percentage point since August, to hold steady.
"I think this is a sign that maybe the economy is reaching that holy grail of a self-sustaining economic expansion," Stuart Hoffman, chief economist at PNC Financial Services in Pittsburgh, told Reuters Insider.
The outlook was further brightened by a separate report showing service sector activity quickened last month to a near one-year high. A gauge of service sector employment touched a six-year high.
Stocks on Wall Street were up more than 1 percent at midday, while U.S. Treasury debt prices fell sharply as investors dialed back expectations on Fed easing. The dollar rose against a basket of currencies.
The employment report contrasted with a fairly glum assessment of the economy offered by the Fed last week.
Officials at the central bank have been debating whether to buy more bonds - a program dubbed QE3 - to drive interest rates lower. It also raised doubts about the Fed's expectation that it could hold interest rates near zero at least through late 2014.
"At the very least this scales back QE3 (quantitative easing) odds. The surprisingly persistent decline in the unemployment rate also calls into question how firmly wedded the Fed is to the late-2014 rate guidance," said Michael Feroli, an economist at JPMorgan in New York.
Interest rate futures indicated that at least some traders were beginning to lay bets the Fed could move interest rates up in early 2014.
Fed fund futures were pricing in a 38 percent chance of a January 2014 rate hike, up from 29 percent before the report, and the first better than even chance of a rate hike was in April 2014, according to CME Group, where the contracts are traded.
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