The U.S. job market showed surprising strength in October, with employers adding 165,000 new jobs and the unemployment rate dropping to 4.1%. This far exceeded economists' expectations of 65,000 new jobs. The Labor Department also revised previous months' data, adding 84,000 more jobs to the totals for August and September. Despite 421,000 people entering the labor force, the unemployment rate fell, and average hourly wages rose 0.4% from September, the largest month-over-month gain since January.
Analysts described the report as a 'blowout,' with strong payroll growth, positive revisions, and improved wage growth. The robust job gains may give the Federal Reserve more confidence in raising interest rates to combat inflation. Wall Street now sees a 77% chance of a December rate hike, up from about 10 percentage points earlier in the week. Economists also predict another rate increase in early 2027.
While hiring was strong in sectors like professional and business services, healthcare, and manufacturing, the leisure and hospitality industry saw a decline of 10,600 jobs. Hourly wages were up only 3.1% from October 2025, meaning many workers' purchasing power has declined despite continued hiring. The job market remains in a 'low-hire, low-fire' environment, with employers reluctant to let go of workers but not eager to hire new ones.
The U.S. economy has shown resilience despite challenges like high gasoline prices and trade tensions. GDP grew at a 3.4% annual pace from July through September, driven by consumer spending and AI investment. However, AI advancements are also leading some companies to slow hiring, as automation allows workers to focus on higher-impact tasks.