The U.S. economy added 165,000 jobs in October, more than double the 65,000 economists expected, and the unemployment rate fell to 4.1 percent. The report lifted market odds of a December interest-rate increase to roughly 78 percent and closed a tense week that had been dominated by an artificial-intelligence stock selloff.
The setup
Friday’s release from the Bureau of Labor Statistics arrived after a bruising stretch for technology shares. Investors had spent the week questioning whether the economy could keep expanding if data-center spending slowed following the midterm elections.
The jobs data answered with a firm message. Payroll gains accelerated, the prior two months were revised higher, and hiring has now averaged roughly 137,000 per month over the past three months, according to Savvy Wealth chief investment officer Anshul Sharma.
Key numbers from the October jobs report
| Indicator | Result | Context |
|---|---|---|
| Nonfarm payrolls | +165,000 | +65,000 expected (LSEG) |
| Unemployment rate | 4.1 percent | 4.2 percent in September |
| Private payrolls | +159,000 | +64,000 expected (LSEG) |
| August payroll revision | 186,000 | 133,000 previously reported |
| September payroll revision | 60,000 | 29,000 previously reported |
| Average hourly earnings | +0.4 percent for the month | About 3.1 percent year over year |
| Broadest unemployment gauge (U-6) | 7.9 percent | Includes involuntary part-time workers |
Where the jobs came from
Professional and business services led with 70,000 new jobs, far above its 15,000 monthly average over the prior year. Health care added 42,000 positions, and manufacturing contributed 19,000.
The details were not all encouraging. The number of people working part-time because their hours were cut rose 339,000 to 4.8 million, and roughly 2 million of the unemployed have been job seeking for 27 weeks or longer.
What analysts said about the report
Seema Shah, chief global strategist at Principal Asset Management, called the report a strong rebuttal to fears that the economy is heading into a meaningful slowdown. She noted that a December Fed hike remains firmly on the table.
Lindsay Rosner, head of multi-sector fixed income investing at Goldman Sachs Asset Management, said the payroll number removed the traffic light at the December intersection for the Fed. She added that additional tightening is possible in the first quarter if inflation continues to print strong.
Jeff Schulze, head investment strategist at the Franklin Templeton Institute, wrote that the report puts renewed pressure on the Fed to hike in December. Steve Sosnick, chief strategist at Interactive Brokers, put it more plainly: with a number like this, labor is no longer a concern.
What it means for rates and income investors
Treasury yields rose after the data. The two-year yield climbed about 6 basis points to 4.52 percent, and the 10-year yield rose to roughly 4.87 percent, according to Reuters.
A quarter-point increase at the December 8-9 meeting would lift the federal funds target range to 4.00 to 4.25 percent. For savers, one-year Treasuries near 4.4 percent currently generate about $4,380 per $100,000 invested each year.
Bond prices fall when yields rise, so holders of long-term notes face paper losses if the Fed hikes again. Income-focused investors can keep duration short to intermediate while short rates stay elevated, a stance Sharma also recommends.
What to watch next
- November jobs report, December 4. It lands five days before the Fed meeting and will carry outsized weight in the decision.
- FOMC meeting, December 8-9. Markets price roughly 78 percent odds of a quarter-point increase.
- Inflation prints. Energy and services costs will decide whether officials feel forced to move faster than once a quarter.
Bottom line
The labor market is not buckling. For retirees and income investors, that means money-market and Treasury yields remain attractive near 4 percent, but further rate increases pressure bond prices and rate-sensitive stocks. The S&P 500 finished Friday up 0.3 percent after a 2.7 percent weekly drop, suggesting equity investors chose steadier footing over panic.
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