U.S. employers added 467,000 jobs in January despite a record wave of coronavirus infections, while the unemployment rate edged up to 4.0%, a report that sharply exceeded expectations that Omicron would interrupt the labor-market recovery.

The Bureau of Labor Statistics also revised November and December payroll growth substantially higher, adding a combined 709,000 jobs to earlier estimates. The revisions transformed the picture of the winter labor market: rather than slowing sharply before Omicron arrived, hiring remained strong through the end of 2021 and into January.

Employment is still about 2.9 million jobs below its February 2020 level, but the gap is narrowing rapidly. The labor-force participation rate rose to 62.2%, and average hourly earnings increased again, signaling that employers continue to compete for workers even as the pandemic disrupts attendance and consumer activity.

Omicron distorted the month without stopping hiring

January was an unusually difficult month to measure. Millions of Americans were infected or exposed to the coronavirus, schools and businesses faced temporary closures, and workers absent because of illness may have affected both payroll and household survey responses. Yet the official count showed broad gains led by leisure and hospitality, transportation and warehousing, professional and business services, and retail trade.

Labor Secretary Marty Walsh said the report demonstrated the resilience of the recovery in a statement Friday. He emphasized that employment had grown by 6.6 million jobs over the preceding year and argued that workers were returning despite the public-health shock caused by Omicron.

The unemployment rate’s increase from 3.9% to 4.0% was not necessarily a sign of deterioration. More people entered the labor force, expanding the number counted as either employed or actively looking for work. That rise in participation is important because the recovery has been constrained not only by demand for labor but also by the number of people willing and able to take jobs.

Employers still report extraordinary demand for workers

Separate data show that the labor market entered January with nearly 11 million open positions. The Job Openings and Labor Turnover Survey reported 10.9 million vacancies on the last business day of December, far above pre-pandemic norms. The quits rate remained elevated at 2.9%, while layoffs and discharges stayed near historically low levels.

That combination—many openings, high voluntary quitting and few layoffs—helps explain why wages are rising. Workers have more leverage to switch employers, and businesses in industries with staffing shortages are raising compensation or changing schedules to attract applicants.

The Employment Cost Index, a broader measure of wages and benefits, showed private-sector compensation rising strongly over the year through December. Wages and salaries increased 4.5% over 12 months, among the fastest gains in the series. Those increases are helping households but are also becoming part of the Federal Reserve’s assessment of inflation pressure.

Strong hiring complicates the inflation debate

The jobs report lands days after the Federal Reserve signaled that it expects to begin raising interest rates soon. In its January policy statement, the Federal Open Market Committee said inflation is well above its 2% goal and the labor market is strong, conditions that support ending emergency monetary policy.

A robust labor market gives the Fed more room to tighten without immediately threatening employment. But it also raises questions about whether wage growth, housing costs and service-sector prices could keep inflation elevated even if supply-chain disruptions ease.

Household purchasing power is already under pressure. The Bureau of Economic Analysis reported in its December income and spending data that the price index for personal consumption expenditures rose 5.8% from a year earlier. Consumer spending fell 0.6% in December, reflecting both inflation and the early effects of the Omicron wave.

Revisions change the story of late 2021

The most consequential feature of Friday’s report may be the revisions rather than the January headline. Seasonal adjustment and the annual benchmarking process substantially raised estimates for late-year hiring, showing that employers had been adding workers much faster than initially reported.

That matters for both economic policy and public perception. Monthly payroll figures are treated as a near-real-time measure of the economy, but they are estimates built from surveys that are routinely revised as more complete information arrives. During a pandemic, when normal seasonal patterns have been disrupted, those revisions can be especially large.

The producer-price data released in January provide another measure of the pressures facing employers, with wholesale prices rising sharply over 2021. Businesses are simultaneously contending with higher materials costs and higher labor costs, making productivity and pricing decisions increasingly important.

For workers, the January report is nevertheless encouraging. Employment continued to expand during one of the largest infection waves of the pandemic, participation improved, and layoffs remained rare. The unresolved question is whether wage growth can continue to outpace rising prices as the Federal Reserve begins withdrawing support. January’s numbers suggest the economy is entering that transition with considerably more labor-market momentum than many forecasters expected.