U.S. October payrolls rise sharply as unemployment falls to 4.1%

The Labor Department said nonfarm payrolls increased by 165,000 jobs in October, pushing the unemployment rate down to 4.1% from 4.2% in September. The report also revised August and September job gains upward, adding 84,000 jobs to the previously reported figures.

The gain was led by professional and business services, which added 70,000 jobs, well above the 12-month average. Healthcare employment rose by 42,000, while transportation and warehousing added 25,000. Manufacturing saw a 19,000-job increase, partly linked to artificial-intelligence investments. Construction lost 3,000 jobs and leisure and hospitality shed 13,000.

"The economy is either at or very near full employment," said Carl Weinberg, chief economist at High Frequency Economics. "We expect the Fed to pivot to focus on the risk of labor demand exceeding labor supply at current levels of demand growth."

Economists surveyed by Reuters had forecast a payroll increase of about 65,000 jobs, well below the actual rise. The share of industries reporting growth rose to 57.6% in October.

Financial markets priced in a roughly 76.8% probability of a Federal Reserve rate hike at the December meeting, up from 66.9% earlier in the week, according to CME's FedWatch tool. The central bank had left its benchmark overnight rate in the 3.75%-4.00% range the previous week.

Wage growth remained moderate, with average hourly earnings up 3.1% over the prior year, and the average workweek unchanged at 34.4 hours. Economists noted that while payrolls are strong, they still lag behind overall economic growth, and that uncertainty from geopolitical tensions and AI adoption may temper future hiring.