U.S. job growth exceeds forecasts

Which sectors are creating new jobs

The strongest job growth was recorded in professional and business services, which added 70,000 positions. This was significantly higher than the sector's average monthly gain of approximately 15,000 over the past year.

Healthcare employment increased by 42,000, while transportation and warehousing added 25,000 jobs. Manufacturing created another 19,000 positions, primarily among producers of electronics, computer equipment, and industrial machinery.

According to economists, employment growth in manufacturing is partly linked to massive investments in artificial intelligence (AI) infrastructure. Companies are actively building data centers and expanding computing capacity, generating additional demand for equipment and skilled workers.

However, not all sectors experienced positive growth. Construction lost 3,000 jobs, while leisure and hospitality employment declined by 13,000.

Despite the improvement in overall employment figures, some challenges remain in the labor market. The number of Americans working part-time for economic reasons increased by 339,000 to 4.84 million. Meanwhile, the median duration of unemployment reached 11.9 weeks, the highest level since 2021.

The Fed may raise interest rates again

Strong employment data increased expectations of tighter U.S. monetary policy. According to the CME FedWatch tool, following the report's release, investors estimated a 76.8% probability of a Fed rate hike in December, up from 66.9% the previous day.

At its October meeting, the U.S. central bank kept its benchmark interest rate unchanged at 3.75%–4.00%, pausing after September's increase.

Carl Weinberg, chief economist at High Frequency Economics, believes the U.S. economy has already reached or is very close to full employment. In his view, the Fed will need to pay greater attention to the risk of labor demand exceeding labor supply.

At the same time, wage growth has not yet shown signs of significantly increasing inflationary pressure. Average hourly earnings rose 3.1% year-over-year, compared with 3.2% in September. This was one of the slowest rates of wage growth since 2021. However, wages increased 0.4% month-over-month, exceeding analysts' forecasts.

Bloomberg Economics analysts also noted that the October report highlights the resilience of the labor market. However, they still see the possibility of the Fed holding rates steady in December due to tighter financial conditions, although the likelihood of another increase has risen.

What the new data means for the U.S. economy

Hiring accelerated against a backdrop of solid economic growth. In the third quarter, U.S. GDP expanded at an annualized rate of 3.4%, supported by consumer spending and strong corporate investment, including in artificial intelligence.

However, employment growth continues to lag behind the pace of economic expansion. Experts attribute this to employers' cautious approach as they assess how AI will affect their staffing needs. Additional uncertainty stems from the U.S.-Israeli war with Iran and the resulting increase in energy prices.

The release of strong employment data supported the U.S. dollar and pushed Treasury yields higher. The next important indicator for investors will be the October consumer inflation report, scheduled for November 10.

The combination of employment and inflation data will largely determine whether the Fed decides to raise interest rates again in December.

Meanwhile, the stock market is recovering from a sharp selloff.

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