US employers added a seasonally adjusted 165,000 jobs in October, well above expectations, and the unemployment rate fell to 4.1 per cent, the Bureau of Labor Statistics said on Friday. The stronger than forecast payrolls print has pushed up market expectations that the Federal Reserve will raise interest rates at its December meeting.
Details of the labour market report
The Bureau of Labor Statistics said nonfarm payrolls rose by 165,000 in October. That compared with the consensus forecast for a much smaller gain. The report also showed average hourly earnings rose 0.4 per cent on the month and 3.1 per cent over the year, slightly above expectations of 0.3 per cent monthly and 2.9 per cent annually.
The average workweek held steady at 34.4 hours. August payrolls were revised up by 53,000 to 186,000 and September payrolls were revised up by 31,000 to 60,000, boosting the three-month picture of job growth.
The broader U6 unemployment measure, which includes discouraged workers and those employed part time for economic reasons, rose to 7.9 per cent, up 0.3 percentage point. The civilian labour force grew by 421,000, and the participation rate edged up to 61.9 per cent, the BLS said.
Job creation in October was unusually broad. Professional and business services led gains with 70,000 new jobs, healthcare added 42,000, transportation and warehousing contributed 25,000, and manufacturing posted 19,000 new positions, according to the labour department figures.
However, the report also showed strains in parts of the labour market. Long term unemployment worsened, with the average duration of unemployment rising by 2.3 weeks to 27.1 weeks, the highest level since September 2021. Some 1.96 million people had been out of work for more than 27 weeks, the largest number since December 2021.
Reaction and what happens next
Economists and market participants reacted to the stronger data as a sign that the Fed may need to keep policy tighter for longer. Traders raised the implied probability of a quarter point rise at the Federal Open Market Committee meeting on 8 and 9 December to 76.8 per cent, according to the CME Group’s FedWatch tool. The tool provides a snapshot of market-implied odds that can move sharply in the days ahead.
The Federal Reserve’s own minutes show the committee lifted the interest rate on reserve balances to 3.90 per cent effective 17 September, and left the target federal funds range at 3.75 per cent to 4.00 per cent. Inflation remains above the Fed’s 2.00 per cent target, which policymakers have cited when weighing further tightening.
Commenting on the October report, Dan North, senior economist at Allianz Trade North America, said: “You have to look pretty hard to find something to dislike in there.” Seema Shah of Principal Asset Management described the numbers as “a strong rebuttal to fears that the economy is heading into a meaningful slowdown.” These assessments underline how the stronger payrolls and wages readings complicate the Fed’s policy decisions.
The release came in the same week as midterm elections that were dominated by concerns about inflation and affordability, in which Democrats won control of both chambers. Policymakers and investors will watch upcoming data for confirmation of the recent strength or signs that underlying momentum is fading.
Analysts caution that payroll figures are subject to revision and that the strength of the labour market is not unanimous. Some commentators note the rise in long term unemployment and point to a smaller labour force over a longer horizon as reasons for caution when interpreting headline gains.
For now, the October labour market report bolsters the case for the Fed to consider another rate increase in December, but the decision is not settled. Market-implied odds can shift quickly with new data and forthcoming statements from policymakers, and the BLS figures may be revised in future months.
