The United States saw stronger-than-expected job growth in October, even as the Federal Reserve had initiated interest rate hikes aimed at slowing down the still-strong labor market.
The Labor Department's report on Friday indicated that nonfarm payrolls increased by 261,000 for the month, exceeding the Dow Jones estimate of 205,000 more jobs.
However, the unemployment rate rose to 3.7%, slightly higher than the expected rate of 3.5%.
While the report's job growth numbers were better than anticipated, it was still the slowest pace of job gains since December 2020. In response to this news, stocks surged, and Treasury yields also saw an increase.
Average hourly earnings grew by 4.7% from a year ago and 0.4% for the month, signifying that wage growth remains a potential contributor to inflation concerns, as worker pay still lags behind the rate of inflation.
Commenting on the data, Elise Gould, a senior economist at the Economic Policy Institute, noted, "There has been some signs of cooling. But we are seeing a pretty strong labor market.
“We did see a substantial increase in jobs. But there's been a slowdown in the rate of increase. You would expect that as we get closer to full employment."
Market expectations have shifted slightly towards a 0.5% Fed rate hike in December, a less aggressive pace than the 0.75% moves that started in June at each meeting. Traders anticipate another 0.5% increase in February.
The healthcare sector saw the most significant job gains in October, adding 53,000 positions, followed by professional and technical services with 43,000 jobs, and manufacturing, which added 32,000 jobs.
The leisure and hospitality sector also showed steady growth, adding 35,000 jobs, although the pace of increase has notably slowed compared to last year.
Retail posted only a modest gain of 7,200 jobs as the holiday shopping season approaches. Other sectors such as wholesale trade and transportation and warehousing experienced job gains as well.
Despite the unemployment rate increase, the labor force participation rate declined slightly to 62.2%. An alternative measure of unemployment, which includes discouraged workers and those in part-time jobs for economic reasons, also inched higher to 6.8%.
While the Federal Reserve continues its campaign to combat inflation, which currently stands at an annual rate of 8.2%, the latest interest rate hikes are also aimed at managing the labor market, which still features nearly two job openings for every available unemployed worker. However, some indicators suggest a slowdown.
Companies like Amazon and Apple have paused or frozen hiring, and others, such as Lyft and Stripe, have announced layoffs. Fed Chairman Jerome Powell characterized the labor market as "overheated" and noted that wage gains are well above the central bank's two per cent inflation target.