U.S. October nonfarm payrolls surged by 165,000, far exceeding expectations! Combined with accelerating wages, expectations for a Federal Reserve rate hike in December are rising.

U.S. nonfarm payrolls rose by 165,000 in October, far exceeding expectations! Combined with accelerating wages, expectations for a Federal Reserve rate hike in December are rising. Data released by the U.S. Bureau of Labor Statistics on November 6 showed that U.S. nonfarm payrolls increased by 165,000 in October from the previous month, far exceeding the market expectation of 65,000 and also significantly above the average monthly increase of 48,000 over the past 12 months. The unemployment rate fell by 0.1 percentage point to 4.1% during the same period, below the market expectation of 4.2%. Job gains were driven by multiple sectors. Professional and business services added 70,000 jobs, of which professional and technical services and administrative support services added 33,000 and 28,000 jobs, respectively; health care added 42,000, transportation and warehousing added 25,000, and manufacturing added 19,000. Employment changed little in other major industries such as government, retail, construction, and leisure and hospitality. Previous readings were substantially revised upward. August nonfarm payrolls were revised up to 186,000 from the initially reported gain of 133,000, and September was revised up to 60,000 from the initially reported gain of 29,000, for a combined upward revision of 84,000 over the two months. Wage growth rose rather than fell. Average hourly earnings for private nonfarm employees rose 0.4% in October from the previous month, above the market expectation of 0.3%; the year-on-year growth rate rebounded to 3.1% from 3.0% in September, while the market had previously expected the year-on-year growth rate to slow to 2.9%. The average workweek remained at 34.4 hours. The labor force participation rate remained at 61.9%, and the number of unemployed persons was little changed at 7.1 million; however, the number of persons employed part time for economic reasons increased by 339,000 from the previous month to 4.8 million, indicating that structural slack remains in the job market. Employment significantly stronger than expected, combined with a rebound in wage growth, may reinforce expectations that the Federal Reserve will continue raising rates in December. The Federal Reserve implemented its first rate hike since 2023 in September and held rates steady in October. Federal Reserve officials will receive one employment report and a full set of inflation data before the next meeting in December. Investors expect that, after raising rates in September and keeping rates unchanged in October, the Federal Reserve will raise rates at its next meeting to curb inflation. Federal Reserve Chairman Kevin Warsh described the employment situation last week as "quite positive," which allows the central bank to focus on inflation. Prediction markets currently expect a 79% probability of a Federal Reserve rate hike in December, up from 67% previously, while the probability of holding rates steady has fallen to 22%.