The US labour market delivered a stronger-than-expected performance in October, with employers adding significantly more jobs than economists had anticipated and the unemployment rate edging lower.
The figures could complicate the Federal Reserve’s efforts to bring inflation under control and strengthen the case for another interest rate increase before the end of the year.
Nonfarm payrolls increased by a seasonally adjusted 165,000 in October, the Bureau of Labor Statistics reported on Friday .
The figure was substantially higher than the Dow Jones estimate of 59,000 and exceeded the average monthly gain of 48,000 recorded over the previous 12 months.
The unemployment rate declined to 4.1%, compared with economists’ expectations of 4.2%.
The report also included significant upward revisions to employment figures for earlier months, suggesting that the labour market had been stronger than previously estimated.
August payroll growth was revised upwards by 53,000 to 186,000, while September’s figure was increased by 31,000 to 60,000.
Wage growth raises fresh inflation concerns
The stronger employment figures were accompanied by an acceleration in wages.
Average hourly earnings increased 0.4% month-on-month and 3.1% year-on-year, compared with estimates of 0.3% and 2.9%, respectively.
The increase in wages could be particularly important for the Federal Reserve as it considers its next monetary policy decision.
Stronger pay growth can support household spending but may also add to inflationary pressures if businesses pass higher labour costs on to consumers.
Tom Graff, CIO at Facet, said the wage figures were more concerning for policymakers than the headline employment gains.
“This could be a one-month fluctuation, but it’s the fastest wage growth in nine months. Lack of immigration is creating a tighter labor market than the headline job gain figures would suggest. If this puts upward pressure on wages, it’s likely to feed inflation,” Graff told Invezz .
Some economists have argued that the relatively low unemployment rate reflects a shrinking supply of available workers rather than exceptionally strong demand for labour.
Immigration restrictions and retirements could be contributing to that tighter supply.
Historically low layoffs and a recent increase in job openings have also raised concerns that competition for workers could intensify.
However, economists and US central bank officials have generally maintained that labour market conditions do not currently pose a significant inflation risk.
December rate hike bets increase
The employment report arrives at a sensitive point for the Federal Reserve.
The Fed left its benchmark overnight interest rate unchanged in a range of 3.75% to 4.00% last week.
However, stronger employment and wage growth have increased expectations that policymakers could resume tightening in December.
Traders raised the probability of a quarter-percentage-point increase at the Federal Open Market Committee’s December 8-9 meeting to 76.8%, according to the CME Group’s FedWatch tool.
The indicator pointed to only one additional increase after that meeting, while expectations for further hikes in 2027 have eased somewhat in recent days.
Graff said he did not expect the Fed to deliver an unusually large increase but believed policymakers could have to continue raising rates into next year.
“I don’t foresee the Fed doing anything as rash as hiking 50bps in December, but, in hindsight, they might wish they had fit two more hikes into 2026. As it is, I see the Fed hiking 25bps in December and probably at least two to three more times in the first half of 2027,” Graff said.
Next Tuesday’s consumer inflation report for October could provide further clues about the direction of monetary policy in early 2027.
Services sectors lead October hiring
The October employment gains were concentrated in professional and business services, healthcare, and transportation and warehousing.
Professional and business services added 70,000 jobs, significantly above the average monthly increase of 15,000 over the previous 12 months.
Professional, scientific and technical services accounted for 33,000 of those positions, while administrative and support services added 28,000.
Management of companies and enterprises contributed another 9,000.
The sector has added 269,000 jobs since reaching a recent low in October 2025.
Healthcare employment increased by 42,000, compared with an average monthly gain of 31,000 over the previous year.
Transportation and warehousing added 25,000 positions, including 17,000 jobs in couriers and messengers and 4,000 in air transportation.
The transportation and warehousing sector has added 104,000 jobs since a recent employment low in February, with couriers and messengers accounting for 71,000 of the increase.
Strong jobs data complicates outlook for technology stocks
The prospect of higher interest rates also presents a challenge for equity markets, particularly technology companies whose valuations are sensitive to borrowing costs and expectations of future earnings.
Nasdaq Composite rebounded on Friday as investors bought the dip in chip stocks following a sharp sell-off that had pushed the index into correction territory.
However, the stronger employment report sent Treasury yields higher, limiting gains in equity futures.
Nic Puckrin, a former Goldman Sachs analyst, said the figures were particularly unwelcome for technology stocks, which were already facing a severe downturn.
“It paves the way for rates to rise again in December and remain higher for longer – all bad news for tech valuations and the increasingly debt-fuelled AI buildout, especially now the sector is already being battered by expectations of stricter policies from the new Democratic Congress,” he said.
He added that the report could give policymakers greater room to prioritise inflation control over employment concerns.
“The numbers give the Fed carte blanche to prioritise inflation over jobs, so ordinary Americans should prepare for a 0.25 percentage point rate hike in December. That means higher borrowing costs, more upward pressure on mortgage rates and less chance of a Santa rally for the stock market. However, it could also mean better returns on cash savings,” he said.
The resilience of the labour market comes alongside strong economic growth.
US gross domestic product expanded at an annualised rate of 3.4% in the third quarter , supported by consumer spending and substantial business investment in artificial intelligence.
Graff warned that the scale of AI investment could itself contribute to inflationary pressures by increasing demand for resources and other inputs.
“The huge spending on AI is putting pressure on resources and prices. Higher rates are having some impact on AI investment, but it remains relatively minor. Maybe new restrictions on data centers will make a difference, but that is not at all assured. However, the Fed might have to hike enough to put real downward pressure on consumer spending to get inflation closer to target,” Graff said.
The October report therefore presents the Fed with a difficult balance: a labour market that remains resilient, but wage growth and investment demand that could make its inflation objective harder to achieve.
(With inputs from Ananthu C U)
AI disclosure: AI tools assisted with research and drafting of this piece. An Invezz editor reviewed the facts, sources and wording before publication. Any opinions or analysis are Invezz’s, not those of an automated system.
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