The US labour market regained momentum in October, with employers adding far more jobs than expected and the unemployment rate declining to 4.1%, strengthening expectations that the Federal Reserve could raise interest rates again in December, Reuters reported. Non-farm payrolls increased by 165,000 jobs in October, according to data released by the US Labor Department's Bureau of Labor Statistics. That was well above the 65,000 jobs economists surveyed by Reuters had expected. September's increase was also revised sharply higher to 60,000 from an earlier estimate of 29,000.
The unemployment rate slipped from 4.2% in September to 4.1%, even as more people entered the labour force. The stronger-than-anticipated report followed separate data showing an increase in US job openings in September and a decline in layoffs, adding to signs that the labour market may be tightening again after losing momentum earlier in the year.
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Revisions to previous months also painted a stronger picture. Payroll gains for August and September were revised upward by a combined 84,000 jobs, while August employment growth was raised to 186,000 from an earlier estimate of 133,000. Average monthly job creation over the latest three-month period stood at 137,000, a marked improvement from the weakness seen during the comparable period in 2025.
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"The labor market is heating up across-the-board and supports our view that the Fed will raise the policy rate again in December," said Kathy Bostjancic, chief economist at Nationwide.
The October increase was broad-based, with professional and business services leading the gains by adding 70,000 jobs. Healthcare employment rose by 42,000, transportation and warehousing added 25,000 positions, and manufacturing gained 19,000 jobs. However, some sectors, including construction and leisure and hospitality, recorded declines.
Despite the strong headline numbers, economists cautioned that the labour market still showed pockets of weakness. Long-term unemployment increased, while the number of people working part-time for economic reasons also rose. The broader unemployment measure climbed to 7.9%, highlighting that not all indicators were improving at the same pace.
"Recent improvements in the employment situation largely relate to a major jump in federal government spending in the third quarter, as well as an unprecedented surge in election spending reported to be near $12 billion within a relatively short time frame of August to October," said Brian Bethune, an economics professor at Boston College.
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Financial markets reacted quickly to the stronger jobs report. Expectations of a Federal Reserve rate increase in December rose to around 80%, while US Treasury yields and the dollar moved higher. The Fed has been balancing a resilient economy against inflation that remains above its 2% target.
The October employment report therefore adds another important data point for policymakers ahead of the Fed's final policy meeting of the year, with upcoming inflation figures likely to play a major role in determining whether another rate increase is warranted.
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