The US economy created 850,000 jobs in June, which US president Joe Biden has hailed as “historic progress” towards recovering from the Covid-19 shock, as hiring catches up with the unrelenting demand for workers.

Non-farm payrolls data released by the Bureau of Labor Statistics on Friday came in well above economists’ expectations of 720,000 jobs created for the month, surpassing the upwardly revised 583,000 gain posted in May and an unexpectedly weak 278,000 new hires in April.

“We have now created over 3m jobs since I took office, more jobs than have ever been created in the first five months of any presidency in modern history,” Biden said in a speech at the White House after the data release. “This is historic progress, pulling our economy out of the worst crisis in 100 years.”

Despite the increase in payrolls — the largest in 10 months — the unemployment rate ticked up slightly to 5.9 per cent from 5.8 per cent the month before.

“It was a solid report, [one] you would hope for given the reopening has continued to gather pace,” said Lee Ferridge, head of macro strategy for North America at State Street Global Markets.

The June report landed at a critical juncture for the US economy. Easing lockdown measures and generous government stimulus programmes have fuelled a robust rebound in economic growth this year. US consumer prices have in turn surged as supply chain constraints have hampered some businesses’ ability to meet red-hot consumer demand.

Crippling labour shortages have also hamstrung employers, as childcare constraints and fears about catching Covid-19 dissuade people from returning to the workforce. Some businesses blame unemployment benefits for holding up the jobs recovery, prompting several Republican-leaning US states to slash aid.

Companies have begun raising wages and handing out perks to attract new hires. Friday’s report suggested those measures have balanced some of the labour market mismatches.

“Instead of workers competing with each other for jobs that are scarce, employers are competing with each other to attract workers,” Biden said. “That kind of competition in the market doesn’t just give workers more ability to earn higher wages, it also gives them the power to demand to be treated with dignity and respect in the workplace.”

“More jobs, better wages. That’s a good combination,” the president added. “Put simply, our economy is on the move.”

Hiring in the leisure and hospitality sector picked up, with 343,000 jobs created for the month. Average hourly earnings jumped for these workers, with 2.3 per cent month-over-month gains for those in non-supervisory positions. Retailers also revved up hiring, filling 67,000 new jobs. Other sectors including public and private education and professional and business services saw improvements.

Construction was one of the “surprising weak spots” last month, said Thomas Simons, an economist at Jefferies, especially in light of the booming US housing market. The number of jobs in the sector fell 7,000 in the third straight month of declines. He attributed the drop to a “worker availability issue more than anything else”.

The labour force participation rate, which tracks the number of Americans either employed or looking for a job, held steady in June at 61.6 per cent. It has remained stuck below 62 per cent since last year.

“It does play into the narrative that there is a block of workers that haven’t re-entered the labour force this summer,” Ferridge said.

Average hourly earnings more broadly edged 10 cents higher to $30.40, amounting to a 0.3 per cent gain from the month before. On a year-over-year basis, earnings have increased 3.6 per cent.

The strong jobs report helped to bolster the case made by a cohort of US central bankers that the Federal Reserve should begin to consider withdrawing its monetary policy support as it closes in on “substantial further progress” towards averaging 2 per cent inflation and achieving full employment. That has long been the threshold for any adjustment to the Fed’s $120bn monthly asset purchase programme.

Fed chair Jay Powell and other members of the Federal Open Market Committee have instead urged patience — a message they sought to hammer home last month following the release of the US central bank’s “dot plot” of individual interest rate projections, which signalled a potentially more hawkish stance than many had anticipated.

Despite June’s gains, US employment remains far below its pre-pandemic levels. More than 9m people are still unemployed, compared to 5.7m in February 2020.

Biden argued on Friday that passing his sweeping infrastructure proposals would fuel further economic recovery. Last week, the White House struck a deal with a small bipartisan group of senators on a $1tn investment package. However, the deal will need sign-off from both the House of Representatives and the Senate to become law.

US government bonds fell marginally after the unexpectedly jobs strong report on Friday, with the benchmark 10-year note steady at 1.45 per cent.