More Jobs Than Expected, but Wages Still Trail Prices

Most people judge the job market with one simple test: does my paycheck stretch further than it did a year ago? By that measure, October’s employment numbers bring mixed news. Average hourly pay rose 0.4% from September, and earnings are up 3.1% over the past year. That sounds respectable until you set it against prices, which have climbed faster than wages every month since March. In plain terms, many workers are earning more dollars and buying a little less with each one. 

That gap explains a puzzle economists have discussed for months. A labor market can look healthy in a government report and still feel shaky at the kitchen table. Households are dealing with a high cost of living, while employers are adjusting to the rapid adoption of artificial intelligence, stubborn inflation and the economic weight of the war with Iran. 

Economists also describe the market as steady but stuck. Diane Swonk, chief economist at KPMG, pointed to a low rate of turnover, meaning fewer people are leaving jobs for better ones and fewer are being hired away. She also noted that fewer people are entering the workforce. Before this report, monthly job growth since January 2025 had averaged only about 35,000, and the share of adults working or looking for work had slipped to 61.8%. When fewer people are job hunting, the economy needs fewer new jobs to keep unemployment from rising, which is why slow hiring had barely moved the jobless rate. 

Against that backdrop, October came in far stronger than anyone predicted. Employers added 165,000 jobs, according to the Bureau of Labor Statistics, and the unemployment rate dipped to 4.1% from 4.2%. Depending on which survey you check, forecasters expected a gain of somewhere between 59,000 and about 70,000, so the actual figure more than doubled even the most hopeful estimate. 

The previous month also looked better on a second look. September’s first count of 29,000 new jobs was revised up to 60,000. The unemployment rate fell even as slightly more people joined the labor force, which is generally the healthier way for that number to improve.

So where did the jobs come from? Professional and business services added 70,000 positions, far above that sector’s average gain of about 15,000 a month over the prior year. Health care added 42,000, continuing its long run as the most dependable source of hiring, and transportation and warehousing grew as well. 

Not every measure tells the same story. On Wednesday, payroll processor Automatic Data Processing, Inc. (NASDAQ: ADP) reported that private employers added 86,000 jobs in October, above forecasts but roughly half the government’s figure. Revelio Labs, a workforce data firm, estimated a gain of only about 26,000. These counts use different methods, so some disagreement is normal, but a spread this wide is a reminder that any single month of data can be noisy. 

The report also matters for interest rates, and here the situation is unusual. Rather than cutting rates, the Federal Reserve has been raising them to fight inflation, most recently in September. Before today’s release, investors were pricing in a 79% chance of another quarter-point increase at the Fed’s December meeting. Vanguard senior economist Adam Schickling had said that a result above 100,000 jobs paired with a 4.1% unemployment rate would likely stir a market reaction, and that is close to what arrived. A sturdy job market gives the Fed less reason to hold back, because it suggests the economy can absorb higher borrowing costs. 

The timing adds another layer. This is the first major economic release since the midterm elections. The administration has pointed to strong hiring as proof that its tax and trade policies are working, and both parties will be reading these numbers closely as the new political chapter begins. 

One strong month does not settle where the economy is heading. October offered real evidence that employers are still willing to hire, and that the labor market has more life than the summer and early fall suggested. Whether that strength reaches household budgets is a separate matter, and the answer depends on pay finally catching up with prices.