U.S. employers added 165,000 jobs in October, beating the consensus forecast by 100,000, while the unemployment rate edged down to 4.1%. The unexpectedly strong report immediately raised Treasury yields, strengthened the dollar and increased market expectations that the Federal Reserve will raise interest rates in December.
The payroll increase was more than three times the average monthly gain of 48,000 during the preceding 12 months, according to the BLS report. The government also revised August and September payroll growth upward by a combined 84,000 jobs. August was raised from 133,000 to 186,000, and September from 29,000 to 60,000.
Those revisions matter because they show the October result was not an isolated monthly spike. Hiring averaged roughly 137,000 over the past three months, a materially stronger pace than investors had been pricing into bonds and interest-rate futures. Economists surveyed by Reuters had expected only 65,000 new jobs, with estimates ranging from 35,000 to 125,000.
Rate-hike expectations climb
Markets treated the report as evidence that the economy can withstand tighter monetary policy. The probability assigned to a quarter-point Federal Reserve increase in December rose to about 78% from 70% before the release, according to Reuters. The two-year Treasury yield rose about six basis points to 4.52%, the 10-year yield gained roughly three basis points to 4.87%, and the U.S. dollar index advanced 0.7%.
Stocks reacted unevenly. The Nasdaq gained about 1.7% and the S&P 500 rose 0.6% in early trading, while the Dow fell about 0.6%. The gains in technology shares provided a partial rebound from Thursday’s 5.52% plunge, but higher borrowing costs remain a risk for richly valued growth companies.
The Federal Open Market Committee held its target rate at 3.75% to 4% last week, although two members favored an immediate quarter-point increase. The official Fed statement said inflation remained elevated and that additional information would guide the next decision. October’s employment surprise gives policymakers more room to focus on inflation without an immediate fear that higher rates will sharply weaken hiring.
Broad gains, but continued strain
Professional and business services added 70,000 jobs, health care added 42,000, transportation and warehousing gained 25,000, and manufacturing added 19,000. Average hourly earnings rose 0.4% from September to $38, the strongest monthly increase since January, and were up 3.1% from a year earlier.
The report also contained signs of labor-market strain. The number of people working part time for economic reasons rose by 339,000 to 4.8 million. Long-term unemployment remained near 2 million, accounting for 27.6% of all unemployed people. The Associated Press noted that annual wage growth continued to trail inflation, limiting the purchasing-power benefit for many households.
The 4.1% unemployment rate was little changed statistically, but it declined even as 421,000 people entered the labor force. Participation held near 61.9%, while the employment-to-population ratio was 59.3%. Those figures support a picture of resilient employment rather than an overheating hiring boom.
The next major test is Tuesday’s October consumer-price report. If inflation remains elevated while payroll growth holds near October’s pace, the case for a December increase will strengthen. A softer inflation reading could still reduce that pressure. For now, the confirmed surprise is that hiring, revisions and unemployment all came in stronger than expected at a moment when markets were bracing for evidence of an economic slowdown.
