US job growth accelerated in October and the unemployment rate fell to 4.1%, suggesting that the labor market could be strengthening after stumbling in mid-summer and keeping the Federal Reserve on track to raise interest rates in December.
The Labor Department’s closely watched employment report on Friday also showed the economy added 84,000 more jobs in August and September than previously reported. The decline in the unemployment rate from 4.2% in September was despite more people piling into the labor force, likely seeking to cushion themselves against higher living costs resulting from the conflict in the Middle East.
The better-than-expected report followed on the heels of data this week showing a rise in job openings in September, which combined with historically low layoffs has raised the specter of the labor market tightening.
“The labor market is heating up across-the-board and supports our view that the Fed will raise the policy rate again in December,” said Kathy Bostjancic, chief economist at Nationwide.
Nonfarm payrolls jumped by 165,000 jobs last month after an upwardly revised 60,000 gain in September, the Labor Department’s Bureau of Labor Statistics said. Economists polled by Reuters had forecast payrolls advancing 65,000 after a previously reported 29,000 increase in September.
Estimates ranged from 35,000 to 125,000 jobs. August’s employment gains were revised up to 186,000 from the previously estimated 133,000. Employment growth averaged 137,000 over the last three months compared to an average loss of 45,000 during the same period in 2025. Some economists were skeptical of the labor market’s newfound strength.
“Recent improvements in the employment situation largely relate to a major jump in federal government spending in the third quarter, as well as an unprecedented surge in election spending reported to be near $12 billion within a relatively short time frame of August to October,” said Brian Bethune, an economics professor at Boston College.
Last month’s broad-based increase in payrolls was led by the professional and business services industry, which added 70,000 jobs, well above the average monthly gain of 15,000 over the past 12 months. Those jobs were in professional, scientific and technical services as well as administrative and support, waste management and remediation services.
Healthcare employment increased by 42,000 jobs, mostly at hospitals and home healthcare services. The transportation and warehousing sector added 25,000 positions, the majority of them couriers and messengers, consistent with strong domestic demand.
Manufacturing payrolls rose by 19,000 jobs, spread across computer and electronic products, machinery and primary metals. The increases are likely linked to the artificial intelligence buildout. There were modest job gains in the retail, financial activities and government sectors.
Construction Loses Jobs
Construction shed 3,000 jobs, the bulk of them residential specialty trade contractors. Residential building construction employment also declined against the backdrop of high mortgage rates, which have depressed homebuilding. Home renovations have also been trending down.
Leisure and hospitality employment dropped by 13,000 positions, concentrated in the accommodation and food services sector. The share of industries reporting growth last month increased to 57.6% from 54.2% in September. The average workweek was unchanged at 34.4 hours.
Financial markets priced in a roughly 80% chance of a rate hike at the US central bank’s meeting next month, up from 66.9% on Thursday, CME’s FedWatch tool showed.
The Fed last week left its benchmark overnight interest rate in the 3.75%-4.00% range. Next Tuesday’s consumer inflation report for October could offer more clues on the course of monetary policy in early 2027. Economists are also watching the stock market after a tech-sector rout on Thursday amid fears a Democratic-led Congress could lead to tougher AI regulation.
Stocks on Wall Street were trading higher. The dollar gained versus a basket of currencies. US Treasury yields rose.
Economists estimated the economy needs to create at least 40,000 jobs per month to keep up with growth in the working-age population. The so-called breakeven rate has declined from roughly 150,000 in 2024 because of the smaller labor force as the Trump administration cracks down on immigration.
Household employment, a volatile measure, increased 463,000 in October, outpacing the 421,000 people who entered the labor force. About 1.589 million people have joined the labor force over the past three months, lifting the participation rate to 61.9% from 61.6% in August. But many of them, mostly re-entrees, have not found work.
Young adults have virtually been locked out of the labor market, with AI eliminating some entry-level positions.
The median duration of unemployment jumped to 11.9 weeks, the longest since November 2021, from 11.5 weeks in September. There were more people working part-time for economic reasons last month, with the number increasing 339,000 to 4.840 million.
A broader measure of unemployment, which includes people who want to work but have given up searching and those working part-time because they cannot find full-time employment, rose to 7.9% from 7.6% in September. Historically low layoffs have anchored the labor market.
Though hiring is picking up, it has lagged economic growth, with gross domestic product increasing at a 3.4% annualized rate in the third quarter. Economists said uncertainty from the US-Israeli war with Iran as well as the impact of AI on staffing needs had left businesses hesitant to increase head count.
“More than a quarter of unemployed workers were searching for six months or longer in October, a share rarely seen outside the aftermath of a recession,” said Cory Stahle, senior economist at the Indeed Hiring Lab. “And even when employers do hire, job posting data suggests that they have increasingly tilted their hiring toward experience, leaving people early in their careers with even fewer ways in.”
Wage growth maintained its moderate pace, increasing 3.1% in the 12 months through October after advancing 3.2% in September. While that underscored the disinflationary impulse from the labor market, it illustrated the continued erosion of household incomes. Consumer prices rose 3.7% year-on-year in September.
Anger over inflation resulted in President Donald Trump’s Republican Party losing control of Congress to Democrats in Tuesday’s midterm elections.
“The American public will continue to skeptically look at the current economic expansion which is highly skewed towards upper- end households and corporates that are profiting from strong underlying demand and robust non-residential investment,” said Joseph Brusuelas, chief economist at RSM.
(Reporting by Lucia Mutikani; Editing by Chizu Nomiyama and Andrea Ricci)
