A hiring rebound far beyond forecasts
October delivered a labor market reading that caught Wall Street off guard. According to figures published Friday by the U.S. Bureau of Labor Statistics, the economy gained 165,000 nonfarm payroll positions, close to three times the 59,000 that economists surveyed by Dow Jones had projected. The jobless rate dipped to 4.1%, better than the 4.2% consensus, leaving 7.1 million people out of work. October's increase also stood well above the 48,000 average monthly gain recorded over the previous 12 months.[S1][S2][S3]
Prior months also came in stronger than first reported. August's figure was lifted by 53,000 to 186,000, while September rose 31,000 to 60,000 — a turnaround from the initial 29,000 estimate, which had undershot forecasts and given the Fed room to leave rates unchanged in October. Wages also beat projections, with average hourly earnings up 0.4% on the month and 3.1% from a year earlier, versus forecasts of 0.3% and 2.9%.[S2][S3]
Where the jobs came from
Hiring spread across a wider set of industries than in recent months. Professional and business services led with 70,000 positions, followed by health care at 42,000 and transportation and warehousing at 25,000. Manufacturing added 19,000, comfortably above expectations. Construction shed 3,000 jobs overall, with residential building construction down 1,200 and residential specialty trade contractors down 15,200, while nonresidential building construction added 2,900 and nonresidential specialty trade contractors 7,900. Real estate, rental and leasing gained 5,600, including 4,300 in real estate alone.[S1][S2]
Not every signal was encouraging. Mike Fratantoni, the Mortgage Bankers Association's senior vice president and chief economist, noted that part of the drop in headline unemployment reflected people accepting part-time work while preferring full-time roles. The broader U-6 measure of underemployment rose to 7.9% from 7.6%, and he added that people who lost jobs are taking longer to find new ones, with both median and average unemployment spells lengthening.[S1][S3]
Markets price a December move
Traders reacted quickly. CME Group's FedWatch tool put the probability of a quarter-point increase in December at 76.8%, though it priced only one further hike beyond that. The Fed had raised its benchmark rate in September and then left it at 3.75% to 4% on Oct. 28, with Chair Kevin Warsh repeatedly keeping the door open to more tightening while inflation runs above the central bank's 2% target. Expectations for 2027 tightening had eased earlier in the week after midterm elections gave Democrats both chambers of Congress and technology shares sold off on Thursday.[S2]
Treasury yields moved higher after the release. The 10-year note rose more than 3 basis points to about 4.87%, the 30-year reached roughly 5.28%, and the 2-year jumped nearly 5 basis points to 4.52%. Seema Shah, chief global strategist at Principal Asset Management, described the report as a strong rebuttal to worries that the economy is heading into a meaningful slowdown, saying job creation remains broad-based and the economy is still absorbing labor comfortably.[S2][S3]
What comes after December
Most economists concur that the October figures open the door to a December increase, though what follows is harder to call. Sam Williamson, senior economist at First American, said the pickup in hiring, the upward revisions and low unemployment signal a sturdier labor market that keeps a December hike firmly in play and may hold back relief on mortgage rates. He added that the course after December will depend on inflation and the next employment report.[S1]
On housing, Williamson said stronger hiring carries two effects: additional jobs bring more income and more incentive to move, yet a firmer economy could push back the arrival of lower mortgage rates. The Mortgage Bankers Association anticipates another rise in the first quarter of 2027, in line with its prior projection that 30-year mortgage rates stay above 7% through next year. Eric Orenstein, senior director at Fitch Ratings, said markets are pricing in tighter policy ahead, holding mortgage rates above 7% for the time being.[S1][S3]
