October Payroll Gains Hit 261K: Labor Market Defies Recession Fears as Hiring Cools

The U.S. labor market continued to show surprising resilience in October, even as growth slowed from the previous month’s pace. According to data released by the Bureau of Labor Statistics, the economy added 261K jobs last month, with the private sector contributing 233K of those gains. While this figure arrived ahead of economist expectations, it marked a significant deceleration from September’s upwardly revised reading of 315K.

Employment Weakens, But Doesn’t Crack

October’s 261K represents the softest monthly hiring performance since December 2020, signaling that labor demand, while still present, is gradually losing steam. The Household Survey painted a more complicated picture: it recorded a net loss of 328K jobs for the month, a divergence that underscores the complexity of current labor dynamics. Over the past six months, average monthly job creation has slowed to approximately 100K, a marked pullback from the 12-month average.

The Unemployment Rate ticked up to 3.7%, reflecting a 20 basis-point increase month-over-month and marking the highest level since February 2022. Meanwhile, Labor Force Participation remained subdued at 62.2%, hovering 120 basis points below pre-pandemic levels—a persistent drag on overall employment growth potential.

Wage Growth Moderates But Remains Elevated

Average Hourly Earnings posted a 0.4% monthly gain, beating the 0.3% consensus forecast and matching the strongest reading since July. On a year-over-year basis, wage inflation stands at 4.7%, slowly trending downward but not declining as rapidly as some analysts had anticipated. The U-6 rate, commonly referred to as “real unemployment,” edged up to 6.8% month-over-month, though it remains below pre-pandemic levels.

Where the Jobs Are Coming From

Sector-by-sector analysis reveals a labor market still supporting growth in key industries. Healthcare led the way with 53K new positions, followed by Professional and Business Services at 43K. Leisure and Hospitality added 35K jobs, while Manufacturing delivered a pleasant surprise with 32K hires—a particularly notable sign given expectations for weakness in that space.

The Bigger Picture: Structural Shifts Ahead

While these gains pale in comparison to the triple-digit monthly increases that characterized the Great Reopening, the underlying resilience is noteworthy. Tech sector layoffs, exemplified by recent moves at major companies, suggest headwinds are building. Yet structural factors—including the reshoring of manufacturing and increased green energy investment—may provide offsetting support for employment across different regions and skill sets.

The Federal Reserve, focused on steering inflation toward its 2% target, shows no sign of pivoting away from its restrictive stance. As long as the labor market remains this sturdy, higher interest rates for longer appears to be the Fed’s intended path forward. Only if employment begins to crack more decisively will monetary policy likely shift course.