The economy added 243,000 jobs in January, many more than had been expected. The unemployment rate also dropped from 8.5 percent to 8.3 percent.
The job gains are a boost for President Obama, who is hoping a growing economy will make voters happier with his stewardship of the economy and carry him to a second term. Unemployment might be the most important statistic to watch ahead of the presidential race, and it has now dropped from 9 percent since September 2011.
Most observers had been expecting about 150,000 jobs to be created in January, or even fewer. The January report was nearly 100,000 jobs higher, and suggests a strengthening job market.
"Businesses are starting to engage," he said. "Every month won't be like this one, we have some tough months ahead but this is a good trend."
The report from the Bureau of Labor Statistics also found the economy gained more jobs than previously reported in November and December.
It said the economy added 157,000 jobs in November, up from a previous estimate of 100,000. In December, the report said the economy added 203,000 jobs, up from 200,000.
Stocks rose on the news, with the Dow Jones Industrial average up nearly 160 points on Friday morning.
The report came as there had been some doubts about the economy's momentum. While growth was the strongest of the year in the fourth quarter of 2011, a report from the Commerce Department last week found the nation's gross domestic product grew at a 2.8 percent rate, a bit less than expected.
The Federal Reserve last week also said it would hold interest rates low through the end of 2014, a decision that hinted at pessimism about the economy.
Republicans in Congress, who have been hammering Obama on his handling of the economy, continued that criticism on Friday while acknowledging the good news in the new labor report.
Their statements focused on the need for policymakers to not be satisfied with the recent jobs reports.
"We can't be satisfied with an unemployment rate mired above eight percent for years on end; we must do better," said Speaker John Boehner (R-Ohio) in a statement.
House Majority Leader Eric Cantor (R-Va.) said the report shows "we are finally seeing some good news" but then added, "we shouldn't settle, we can do more, this is America."
House Republican Policy Committee Chairman Tom Price (Ga.) pointed to a report issued earlier in the week by the Congressional Budget Office that predicted unemployment would rise by the end of the year. He also criticized Obama's handling of the economy.
"While any sign of job creation is positive, the economy is still in need of relief from those failed policies which have weighed down economic opportunities by drastically increasing the burden of debt, growing the size of government and threatening more taxes on job creators and American families," he said in a statement.
At the White House, administration officials said the report showed the need to continue Obama's policies, including the payroll tax cut set to expire at the end of February.
"Today’s employment report provides further evidence that the economy is continuing to heal from the worst economic downturn since the Great Depression," said Alan Krueger, chairman of the Council of Economic Advisers. "It is critical that we continue the economic policies that are helping us to dig our way out of the deep hole that was caused by the recession that began at the end of 2007."
He and Labor Secretary Hilda Solis said the most important next step is for Congress to extend the payroll tax cut as well as federal unemployment benefits through the end of this year, as well as taking additional steps the president proposed in his State of the Union address.
"In the last 12 months, 2.2 million private sector jobs were added on net," he said. "Nonetheless, we need faster growth to put more Americans back to work."
The private sector added a total of 257,000 jobs in January, with the strongest gains coming in professional and business services, leisure and hospitality and manufacturing. Friday's figures eclipse December's and suggest the labor market is strengthening. The beginning of the year is typically a rough period when employers, especially retailers, shed seasonal workers. But Friday's report showed retailers gaining jobs, with department stores adding 19,000.
Professional and business services added 70,000, with half of that increase in employment services. Accounting and bookkeeping added 13,000, while architectural and engineering services added 7,000.
Employment in leisure and hospitality increased by 44,000, primarily in food services, which added 33,000 jobs. Since a recent low in February 2010, the food-services sector has added 487,000 jobs.
Healthcare added 31,000, while manufacturing added 50,000 jobs. Nearly all of the increase in manufacturing came from durable goods manufacturing, including fabricated metal products (11,000), machinery (11,000) and motor vehicles and parts (8,000).
Durable goods manufacturing has added 418,000 jobs over the past two years.
Construction employment increased for the second straight month, adding 21,000 jobs last month after a gain of 31,000 in December.
In January, average hourly earnings for private-sector employees rose by 4 cents, or 0.2 percent, to $23.29. In the past 12 months, average hourly earnings have increased by 1.9 percent.