What a Hotter-Than-Expected October Jobs Report Means for the Fed
The October jobs report was released Friday morning. Here's what the data show.
"The jobless rate is lower than a year ago, and payroll growth is noticeably above last year's pace," Federal Reserve Chair Kevin Warsh said during his press conference following the October Fed meeting. In addition to a jobless rate of 4.2%, Warsh cited a four-week moving average for unemployment insurance claims that continues to run at the lowest level in generations. "So, on the employment side of the Fed's dual mandate, conditions are quite positive," Warsh concluded.
That was despite a cooler-than-expected September jobs report. A hotter-than-expected October jobs report underscores Warsh's conclusion that the employment situation is indeed quite positive. At the same time, it suggests the central bank has even more evidence to support a quarter-point rate hike at the December Fed meeting.
According to the Bureau of Labor Statistics, the U.S. added 165,000 new jobs in October, well above a consensus forecast of 59,000.
From just $107.88 $24.99 for Kiplinger Personal Finance
Become a smarter, better informed investor. Subscribe from just $107.88 $24.99, plus get up to 4 Special Issues
Sign up for Kiplinger’s Free Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
The unemployment rate, which is derived from a separate survey, ticked back to 4.1% from 4.2%.
At the same time, job growth for August (+53,000 to +186,000) and September (+31,000 to +60,000) was revised up, resulting in a combined 84,000 more jobs than previously reported.
Healthcare added 42,000 jobs in October, higher than an average monthly gain of 31,000 over the prior 12 months. Transportation and warehousing added 25,000 jobs, while manufacturing continued to trend up with 19,000 new jobs.
A strong jobs report, combined with persistent pressure on consumer and producer prices, further supports expectations for a rate hike in December.
According to CME FedWatch, futures traders are pricing in a 72.8% probability the central bank will increase the federal funds rate by a quarter-percentage point when it meets next month, up from 66.9% one day ago and 70.7% one week ago.
ADP jobs report was better than expected
Wall Street got a peek at how things are going in the labor market on Wednesday morning with the ADP National Employment Report, which showed private payrolls rose by 86,000 in October, down from 90,000 in September but above the 75,000 economists expected.
The industries seeing the largest increases in jobs were trade, transportation and utilities; education and health services; and leisure and hospitality. Professional and business services and natural resources and mining saw the biggest declines in positions.
What Wall Street has to say about the October jobs report
"The strength in job creation was broad based, with few sectors showing weakness during the month of October. The rate of unemployment was lower in October, at 4.1%, even as the labor force participation rate increased slightly. The 3-month average change in jobs increased to 137,000, up from a rate of 79,000 for the three months ending in September. The strength in job creation during the last several months is in line with other surveys and shows that the U.S. economy continues to grow at a strong pace. For the Federal Reserve, this should allow them to concentrate on the inflation side of their mandate. We expect the Fed to increase the federal funds rate by 25 basis points in December." - Eugenio J. Alemán, Ph.D., Chief Economist, Raymond James
"Payrolls, which have been all over the place this year, beat this month: jobs gains came in at 165,000. The prior two months were also revised up by 84,000. More worrisome for the Fed is that average hourly earnings grew 0.4%, above the 0.3% expected. 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. This creates urgency for the Fed, and, frankly, is why I believe they should have hiked in October. I don't foresee the Fed doing anything as rash as hiking 50 bps in December, but, in hindsight, they might wish they had fit two more hikes into 2026. As it is, I see the Fed hiking 25 bps in December and probably at least two to three more times in the first half of 2027." - Tom Graff, Chief Investment Officer at Facet
"Friday's stronger-than-expected jobs report is a relief, and suggests that the labor market is still able to produce jobs even in this elevated interest rate environment. The report by itself is unlikely to sway the Federal Reserve's rate calculus as of now, and we would still expect a December rate hike." - Clark Bellin, Chief Investment Officer at Bellwether Wealth
"Great numbers across the board and the Fed has one less worry for now. 2027 is going to matter way more with the perceived threat to AI and data center spend. I will give a warning to the newly elected Democratic majority before they take power. Be wise and think before implementing a widespread attack on AI and related construction. AI has been the driver for consumer spending, labor and GDP for some time now. Every decision has a cost, and if Dems come out of the gate, blocking AI and the associated spend, that will have widespread implications for the labor market and economy." - Byron Anderson, Head of Fixed Income at Laffer Tengler Investments
"The economy is doing well — it is growing at 3.4%, corporate earnings are up more than 25% year-over-year — and it can handle higher oil prices and higher interest rates. Despite an oil shock and a Federal Reserve that is raising rates (albeit slowly), the unemployment rate actually dropped and the 4.1% level is at or close to full employment. Trees don’t grow to the sky and of course there is a limit to how high interest rates can go before something breaks, but the day-to-day knee jerk reaction to changing narratives and daily news is nothing new – as someone much smarter than me said, 'In the short run the market is a voting machine, but in the long run it is a weighing machine,' and we always keep that in mind as we navigate times like these." - Chris Zaccarelli, Chief Investment Officer at Northlight Asset Management
"The number was a strong beat. This clearly sets the Fed up very well to continue to bring their target rate higher to address inflation. Our view remains that the Fed needs to continue to bring rates higher. This is an interesting situation for fixed income investors, as the reality is that the direction of rates is clearly higher both at the front end and likely further out the yield curve as well. That will create significant volatility for longer duration assets. Given a higher rate environment, we continue to focus attention on shorter-duration assets. Credit spreads are actually wider recently, and so we like the risk-return there. You have less sensitivity to rising rates, higher yields, and corporate credit fundamentals remain intact." - Larry Holzenthaler, Senior Portfolio Manager at Catalyst Funds
"There is nothing here to suggest that the labor market is anything other than tight. Many manufacturing companies continue to report that workers are hard to find, and those they have they are keen to retain. Unfortunately for those workers, this is still not translating into higher wages and salaries. While we may be starting to see some modest strength in this report, for example, and in the latest Atlanta Fed wage tracker, as well as a small increase in the quit rate, on the whole wage gains remain well contained. It is possible that some of this restraint is less due to AI replacing workers, but more to the threat of AI in the future — workers may be reticent to push for higher wages if they feel it may increase their chances of redundancy when/if AI really starts to threaten their roles. The mix of employment gains was encouraging. It shows that while the capex boom is clearly drawing more workers back into the manufacturing sector, other non-AI related sectors are also showing broad strength. With the unemployment rate now just below the Fed's longer-run median estimate of unemployment, employment is not a hurdle that would prevent it from raising rates again in December, allowing it to focus more on the inflation side of the dual mandate." - Richard de Chazal, Economist at William Blair
Related content
