U.S. Hiring Rebounds Sharply in October, Pushing Odds of a December Rate Increase

U.S. employers added 165,000 jobs in October, more than double the 65,000 economists had forecast, in a report that has shifted market expectations toward a Federal Reserve interest-rate increase next month rather than a cut.

The Labor Department's employment situation report, released Friday, showed private payrolls rising by 159,000, with the gains concentrated in professional and business services, which added 70,000 positions, and health care, which added roughly 55,000. Transportation and warehousing added 25,000 jobs and manufacturing 19,000, while leisure and hospitality shed 13,000 positions and construction lost 3,000. The unemployment rate fell to 4.1% from 4.2% in September, and the labor-force participation rate ticked up to 61.9%.

Revisions add to the strength

The report also carried upward revisions to the two prior months that had suggested a softer labor market. August's initial gain was revised up by 53,000, to 186,000, and September's was revised up by 31,000, to 60,000, adding a combined 84,000 jobs to the economy's recent track record. Average hourly earnings rose 14 cents, or 0.4%, to $38.00, putting wage growth at 3.1% over the past year, ahead of the pace economists had expected.

Markets read the data as reducing the odds the Fed will need to keep cutting rates to support employment. According to Fox Business's coverage of the report, the probability traders assigned to a quarter-point rate increase at the Fed's December 8-9 meeting, as tracked by the CME Group's FedWatch tool, climbed to 76.8% from 66.9% a week earlier. A hike of that size would move the federal funds rate to a range of 4% to 4.25%. On the day of the report, the S&P 500 gained about 0.65% and the Nasdaq rose roughly 1.25%, while the Dow Jones Industrial Average slipped about 0.2%.

Mixed reviews from economists

Seema Shah, chief global strategist at Principal Asset Management, said the report "is a strong rebuttal to fears that the economy is heading into a meaningful slowdown," arguing a December rate increase remains likely even with recent tightening in financial conditions. Lindsay Rosner of Goldman Sachs Asset Management offered a similar read, saying the payroll figure "removed the traffic light at the December intersection for the Fed," and that continued labor-market strength could open the door to further tightening in early 2027 if inflation does not cool.

The October data arrives as the Fed's rate-setting committee heads into its final meeting of the year carrying a mandate that has grown more complicated: unemployment remains historically low and wage growth has accelerated, even as policymakers continue to weigh how tariff-related costs are feeding into consumer prices. The next major data point, November's jobs report, is due in early December, just before the Fed's meeting, and will likely be the last piece of evidence policymakers see before deciding whether to raise, hold, or still cut the benchmark rate.