The October US jobs report exceeded expectations, with non-farm payrolls rising by 165,000 jobs, significantly higher than the forecasted 75,000. The data also included upward revisions of 84,000 jobs for the previous two months. The unemployment rate dropped to 4.1% from 4.2%, and wage growth increased by 0.4% month-over-month and 3.1% year-over-year, surpassing the consensus estimates of 0.3% and 2.9%, respectively.
The strong jobs report has bolstered the likelihood of a December interest rate hike by the Federal Reserve, with expectations now pricing in a 20 basis point increase. The Fed had previously been seen as nearly evenly split on the decision, but the latest data has shifted the narrative. Private education and healthcare services led the job gains with 53,000 new positions, while manufacturing saw a notable increase of 19,000 jobs, marking a turnaround after three years of decline.
Other sectors showing growth included temporary help, which added 19,000 jobs, and transport and warehousing, which saw an increase of 25,000 jobs. However, leisure and hospitality lost 13,000 jobs, and construction employment fell by 3,000. The Fed is expected to focus on inflation but remains attentive to the strong jobs market as it considers its next move.
While a December rate hike is anticipated, analysts doubt the need for additional hikes in 2027. The market has also adjusted its expectations, no longer fully pricing in further rate increases next year. This shift comes amid a significant drop in energy prices and reduced concerns about second-round price effects. Next week's Consumer Price Index (CPI) report is expected to show a 0.2% month-over-month rise in core CPI, which would support the current narrative.