U.S. employers added 165,000 jobs in October, far above forecasts

U.S. employers added 165,000 jobs in October, roughly two and a half times what economists had predicted. The unemployment rate slipped to 4.1% from 4.2% in September, the Labor Department reported Friday.

Forecasters had expected much weaker hiring. Economists polled by FactSet had projected 65,000 new jobs. A Dow Jones survey put the estimate at 59,000 and expected the jobless rate to hold at 4.2%.

The Bureau of Labor Statistics also raised its estimates for the two prior months by a combined 84,000. August's gain now stands at 186,000, up from the 133,000 first reported. September's rose to 60,000 from 29,000.

The report extends a recovery from a very weak 2025, when payrolls grew by an average of about 10,000 a month. Through October of this year, monthly gains have averaged roughly 86,000. Layoffs have stayed low, helped by healthy corporate profits and consumer spending.

"Today's jobs report is a strong rebuttal to fears that the economy is heading into a meaningful slowdown," Seema Shah, chief global strategist at Principal Asset Management, said in an email. Jennifer Timmerman, senior investment strategy analyst at Wells Fargo, said the figures "added to evidence of labor-market stability" and of consumer resilience. Heather Long, chief economist at Navy Federal Credit Union, called the report "a blowout."

Professional and business services led the gains with 70,000 jobs, far above that sector's average monthly increase of 15,000 over the past year. Health care added 42,000, which the BLS said also topped its average monthly gain for the past year.

Manufacturing employment grew by 19,000. The sector has now gained more than 100,000 jobs since a low point in December 2025. Within manufacturing, the BLS said computer and electronics, machinery and primary metal manufacturing led the increase.

Some of that growth may be tied to the buildout of artificial intelligence infrastructure. Before the report, Bank of America's Shruti Mishra said she expected heavy tech spending to "continue to support employment in construction and manufacturing," through data center construction and the production of AI-related equipment. Nonresidential construction added nearly 3,000 jobs in October, which NBC News described as a likely sign of demand for data center work.

Housing moved in the opposite direction. Home building and contracting lost more than 15,000 jobs. High interest rates have stalled the residential real estate market and reduced demand for the refinancing loans that often pay for home renovations.

Retailers appear to have started holiday hiring early. General merchandise retailers added more than 18,000 workers. In October, the Indeed Hiring Lab reported that seasonal hiring was "off to its best start in several years." Andy Challenger of outplacement firm Challenger, Gray & Christmas said retailers are turning to automation, current staff and on-demand worker pools before bringing on new seasonal employees.

Wage growth remained weak. Average hourly earnings rose 3.1% from a year earlier, slightly above the 2.9% economists had expected but still below inflation. The consumer price index released Oct. 14 put annual inflation at 3.7% for September. Wages have grown more slowly than prices since March.

Long said the stronger hiring does not change that squeeze. "Inflation has wiped out all wage gains for 7 straight months," she wrote on X, adding that the rebound in inflation has erased essentially all wage gains since January 2025.

Job seekers also face a tougher search. The share of unemployed people who have been out of work for 27 weeks or longer rose to 27.6% in October from 27.1% in September. CBS News noted that labor data suggests employers are handing to AI some roles that historically would have gone to younger Americans.

Low unemployment also masks a slow-moving job market, economists said. "The problem is the low rate of turnover," said Diane Swonk, chief economist at KPMG. "Fewer people are entering the labor force." Workers who want or need to change jobs have had few openings to choose from.

Economists said the strong report adds to the case for the Federal Reserve to raise interest rates at its Dec. 8-9 meeting. The Fed held its benchmark rate steady in October, and most economists expect an increase next month. Inflation remains well above the central bank's 2% annual target. Fast hiring tends to push wages up, which can feed further price increases.

Olu Sonola, head of U.S. economics at Fitch Ratings, said in an email that the labor market's strength keeps the Fed focused on inflation and "pushes the policy debate further toward a December rate hike." As of Friday morning, futures traders saw about a 77% chance of a hike at the December meeting, according to CME FedWatch.

The report follows a rough stretch for stocks. Investors have grown uneasy about whether the pace of AI investment can last. On Thursday, the S&P 500 and the Nasdaq Composite posted their worst one-day declines since April 2025. The Nasdaq 100 fell 6%, wiping out more than $2 trillion in market value.

Earlier in the week, Citi economist Veronica Clark warned that housing construction and parts of manufacturing could be hurt by higher rates. "If financial conditions continue to tighten, demand for labor may soften more broadly," she wrote.