US nonfarm payrolls increased more than expected in October and the unemployment rate fell to 4.1%, suggesting the labor market remained resilient and giving the Federal Reserve more scope to focus on inflation stemming from the Middle East conflict.
Payrolls jumped by 165,000 jobs last month after an upwardly revised 60,000 gain in September, the Labor Department’s Bureau of Labor Statistics said on Friday. Economists polled by Reuters had forecast payrolls advancing 65,000 after a previously reported 29,000 increase in September.
Estimates ranged from 35,000 to 125,000 jobs. Economists estimated the economy needed to create at least 40,000 jobs per month to keep up with growth in the working-age population. The so-called breakeven rate has declined from roughly 150,000 in 2024 because of the smaller labor force.
The unemployment rate declined from 4.2% in September.
Historically low layoffs and a recent jump in job openings have raised the prospect of labor market tightening.
But economists and US central bank officials have maintained that the labor market poses no inflation risk. Some economists have argued that a shrinking supply of workers amid an immigration crackdown and retirements is the primary driver of the relatively low unemployment rate.
The Fed last week left its benchmark overnight interest rate in the 3.75%-4.00% range. Economists expect a rate hike in December. Next Tuesday’s consumer inflation report for October could offer more clues on the course of monetary policy in early 2027.
Despite the labor market resilience, job gains are lagging economic growth, with gross domestic product increasing at a 3.4% annualized rate in the third quarter, fueled by strong consumer spending and businesses aggressively investing in artificial intelligence.
Economists said employers likely overhired after the COVID pandemic, and some businesses were probably uncertain about their staffing needs as they incorporated AI into their operations. They said uncertainty stemming from the US-Israel war with Iran, which has raised energy prices, was also making employers hesitant to increase headcount.
Limited opportunities have made it difficult for young adults, recent college graduates and some unemployed people to find work.
Disenchantment over the economy as well as anger over the Middle East conflict, now in its ninth month, cost President Donald Trump’s Republican Party control of Congress, with Democrats performing strongly in this week’s midterm elections.