US economy added 165,000 jobs in October, unemployment falls to 4.1%

The United States labor market added far more jobs than expected in October, the Bureau of Labor Statistics reported Friday, a surprisingly strong reading that is complicating the Federal Reserve's deliberations over whether to raise interest rates next month.

Nonfarm payrolls rose by a seasonally adjusted 165,000 last month, the agency said in its monthly employment situation report, more than double the roughly 60,000 jobs that economists surveyed by Dow Jones and LSEG had projected. The unemployment rate fell to 4.1%, from 4.2% in September, defying forecasts that it would hold steady or tick higher.

A report that beat expectations across the board

The gains were broad rather than concentrated in a single industry, a detail several economists flagged as reassuring after a stretch of hiring reports dominated almost entirely by health care. Professional and business services led with 70,000 new positions, followed by health care at 42,000, transportation and warehousing at 25,000, and manufacturing at 19,000. Government and retail trade employment showed little change over the month, the bureau said.

Wages also grew faster than forecast. Average hourly earnings for all private-sector employees rose 14 cents to $38.00, a 0.4% monthly increase that left pay up 3.1% from a year earlier, both above consensus estimates. The average workweek held steady at 34.4 hours, and the labor-force participation rate edged up to 61.9%, a sign more people were drawn into the job search as hiring picked up.

Not every measure in the report pointed to strength. The broader U-6 measure of underemployment, which includes discouraged workers and people working part-time for economic reasons, rose three-tenths of a point to 7.9%. The average duration of unemployment jumped to 27.1 weeks, the highest since September 2021, and the number of people out of work for more than six months climbed to roughly 1.96 million, the most since December 2021 — evidence that those who do lose jobs are struggling longer to find new ones even as overall hiring accelerates.

Revisions reshape the recent past

Beyond October's own numbers, the bureau's revisions to prior months changed the picture of the past half-year. August payrolls were revised up by 53,000, to 186,000, and September's initially weak gain of 29,000 — reported in the bureau's October 2 release — was revised up by 31,000, to 60,000. Combined, the two months added 84,000 more jobs than previously recorded, meaning the labor market had been gathering momentum for longer than the initial data suggested.

Economists who track the monthly reports said the combination of a strong headline number, upward revisions and firm wage growth made October's report unusually difficult to read as anything but positive for the economy, even as it complicated the inflation outlook. Heather Long, chief economist at Navy Federal Credit Union, contrasted the current pace of hiring with a year earlier, when monthly gains were running closer to 10,000 and concentrated almost entirely in health care, saying the labor market is now on firmer footing.

Workers and employers affected

The gains in professional and business services and health care point to continued demand for white-collar and clinical labor, from consulting and technical firms to hospitals, outpatient clinics and home health agencies. The pickup in transportation and warehousing, led by couriers and air transportation, suggests retailers and logistics firms were staffing up heading into the holiday shopping season. Manufacturers, meanwhile, added workers for a second straight month after a prolonged stretch of weakness tied to tariff-related uncertainty earlier in the year.

At the same time, the rise in long-term unemployment signals a bifurcated market: companies are hiring, but workers who are laid off — including those in sectors that have shed positions this year, such as parts of the technology and federal workforce — are taking longer to land new positions. That divergence has shown up repeatedly in surveys of hiring managers and in state unemployment-claims data over recent months.

Markets and the Fed react

Wall Street's initial reaction was mixed. Treasury yields rose broadly as traders priced in a greater chance the Fed will raise, rather than cut, its benchmark rate at its upcoming meeting. Equity futures were choppy in the minutes after the data, with growth-sensitive sectors initially higher before giving back some gains as rate-hike bets built through the morning.

The report lands five weeks before the Fed's next policy meeting, scheduled for December 8-9, the central bank's final gathering of the year and one that will include updated economic projections. Policymakers, now led by Chair Kevin Warsh, who was confirmed by the Senate in May to succeed Jerome Powell, have been weighing whether to resume rate increases as inflation has remained stubbornly above the central bank's 2% target even as growth has held up.

Market-implied odds of a quarter-point increase in December rose sharply after Friday's release, reversing expectations just weeks earlier that the Fed's next move would be a cut. Strategists said the combination of strong hiring and accelerating wage growth gave the central bank little cover to ease.

"Today's jobs report is a strong rebuttal to fears that the economy is heading into a meaningful slowdown," said Seema Shah, chief global strategist at Principal Asset Management, in a statement issued after the release on Friday.

Lindsay Rosner, head of multi-sector fixed income investing at Goldman Sachs Asset Management, offered a similar read, saying the payroll figure removed a key uncertainty hanging over the Fed's December meeting, while adding that additional tightening remains possible into early next year if inflation readings stay firm.

What comes next

Attention now turns to the October consumer price index, due in the coming weeks, which will give policymakers a fuller picture of whether wage growth is feeding through into broader inflation. The Fed's December meeting will be the first test of how Warsh's leadership balances the White House's preference for lower borrowing costs against a labor market that, on Friday's evidence, may not need the support a rate cut would provide.

For businesses, the report offers a more favorable read heading into the holiday season than the sluggish hiring data of recent months implied, particularly in logistics and professional services. For workers already out of a job, however, the lengthening average duration of unemployment suggests that a stronger aggregate number is not yet translating into a faster return to work for everyone affected.