The US labor market expanded at a much faster pace than economists had projected in October, with employers adding 165,000 positions on a seasonally adjusted basis, according to data released Friday by the Bureau of Labor Statistics. The consensus estimate compiled by Dow Jones had pointed to just 59,000 new jobs, and the prior 12-month average monthly gain stood at 48,000.
The unemployment rate slipped to 4.1%, below the 4.2% that economists had anticipated. The report also brought meaningful upward revisions to earlier data: August payroll growth was revised higher by 53,000 to 186,000, while September's figure was lifted by 31,000 to 60,000. Those changes suggest the labor market had been running hotter than previously understood.
Wage growth adds to inflation concerns
Alongside the headline employment gains, average hourly earnings rose 0.4% month-on-month and 3.1% year-on-year, topping estimates of 0.3% and 2.9%. The year-on-year pace marked the fastest wage growth in nine months, a development that could complicate the Federal Reserve's efforts to bring inflation back toward its target.
Tom Graff, chief investment officer at Facet, said the pay figures matter more for policymakers than the headline jobs number. "This could be a one-month fluctuation, but it's the fastest wage growth in nine months," Graff said, adding that reduced immigration is creating a tighter labor market than the payroll gain alone would imply. "If this puts upward pressure on wages, it's likely to feed inflation."
Some economists argue that the low unemployment rate reflects a shrinking supply of available workers rather than unusually strong demand for labor. Immigration restrictions and retirements may be contributing to that tighter supply. Historically low layoffs and a recent pickup in job openings have also raised the possibility that competition for workers could intensify. Still, economists and Fed officials have generally maintained that labor market conditions do not currently represent a major inflation risk.
December rate hike bets climb
The report lands at a delicate moment for the central bank. The Fed left its benchmark overnight rate unchanged last week in a range of 3.75% to 4.00%. But stronger employment and wage data have bolstered expectations that policymakers could resume tightening at the December 8-9 meeting of the Federal Open Market Committee.
Traders raised the probability of a quarter-percentage-point increase to 76.8%, according to CME Group's FedWatch tool. The gauge pointed to only one additional increase after that meeting, while expectations for further hikes in 2027 have eased somewhat in recent days.
Graff said he does not expect an outsized move in December but believes the Fed may need to keep raising rates into next year. "I don't foresee the Fed doing anything as rash as hiking 50bps in December, but, in hindsight, they might wish they had fit two more hikes into 2026," he said. "As it is, I see the Fed hiking 25bps in December and probably at least two to three more times in the first half of 2027." The October consumer inflation report, due next Tuesday, could offer further clues about the policy path.
Services sectors drive October hiring
October's job gains were concentrated in professional and business services, healthcare, and transportation and warehousing. Professional and business services added 70,000 positions, well above the prior 12-month average of 15,000. Professional, scientific and technical services accounted for 33,000 of those, administrative and support services contributed 28,000, and management of companies and enterprises added 9,000. The sector has added 269,000 jobs since a recent low in October 2025.
Healthcare employment rose by 42,000, compared with an average monthly gain of 31,000 over the previous year. Transportation and warehousing added 25,000 positions, including 17,000 in couriers and messengers and 4,000 in air transportation. That sector has added 104,000 jobs since a recent employment low in February, with couriers and messengers accounting for 71,000 of the increase.
Technology stocks face pressure
The prospect of higher interest rates poses a challenge for equity markets, particularly technology companies whose valuations are sensitive to borrowing costs and expectations of future earnings. The Nasdaq Composite rebounded on Friday as investors bought the dip in chip stocks following a sharp sell-off that had pushed the index into correction territory. However, the stronger employment report sent Treasury yields higher, limiting gains in equity futures.
Nic Puckrin, a former Goldman Sachs analyst, said the figures were particularly unwelcome for technology stocks, which were already facing a severe downturn. "It paves the way for rates to rise again in December and remain higher for longer – all bad news for tech valuations and the increasingly debt-fuelled AI buildout," he said.
This article is for informational purposes only and does not constitute financial advice.
