US Employers Added 165,000 Jobs in October, Triple the Forecast

US employers added 165,000 jobs in October, more than double the 65,000 forecasters polled by Reuters expected, and the unemployment rate fell to 4.1% from 4.2% in September, according to the October jobs report released Friday. Revisions added another 84,000 jobs to the August and September totals combined.

That strength came with a price. Traders now put roughly an 80% probability on a Federal Reserve rate hike in December, up from 66.9% on Thursday, per Reuters. For households, that means credit cards, auto loans and home equity lines get more expensive again — while the paychecks covering those bills keep falling behind prices.

Why the Fed's case just got stronger

In late October, Michael Gapen of Morgan Stanley laid out what would push the Fed toward more hikes. He wanted evidence that "employment growth is picking up, the unemployment rate's moving lower, and wage growth is turning and starting to firm." At the time, hiring was running at only about 50,000 jobs a month.

October delivered two of those three conditions. The Fed has already moved once, raising the upper bound of its target range to 4.00% from 3.75% in September. Inflation adds pressure: consumer prices rose 0.6% in September alone and 3.7% year over year.

The takeaway: the labor market is now doing the Fed's work for it, and markets expect another hike as soon as December.

Workers are losing the race against prices

The missing piece is wage growth. Over the 12 months through October, wages grew 3.1%, down from 3.2% in September. Average hourly earnings reached $38.00 — but with inflation at 3.7%, the typical worker's buying power is shrinking just as borrowing costs climb.

The broad-based picture is weaker still. The U-6 measure, which counts discouraged and involuntary part-time workers, rose to 7.9% from 7.6%. The median job search stretched to 11.9 weeks, the longest since November 2021. Cory Stahle of Indeed Hiring Lab noted that more than a quarter of unemployed workers have been searching for six months or longer.

RSM chief economist Joseph Brusuelas called the expansion "highly skewed towards upper-end households and corporates."

In plain terms: headline job growth looks great, but the people out of work are staying out longer.

Where the hiring actually happened

• Professional and business services: +70,000
• Healthcare: +42,000
• Manufacturing: +19,000, which Reuters linked to the AI expansion
• Construction: −3,000
• Leisure and hospitality: −13,000

Construction and hospitality employ many of the workers most exposed to higher rates — the two sectors losing jobs are the ones the Fed's tightening hits first.

Boston College economist Brian Bethune attributed much of October's strength to a jump in federal spending and roughly $12 billion in election spending between August and October. That election money is now gone.

What to watch before December

The November jobs report, due in early December, is the key test. If payroll gains hold up without election spending, a December hike looks likely — and a pickup in wage growth would complete Gapen's checklist, a combination he said could bring more rate hikes in 2027. If hiring falls back toward its earlier 50,000-a-month pace, a December hike would look like a mistake, and the job seekers already waiting the longest would bear the most cost.