Last Friday, something happened that literally nobody expected. The US jobs report came out, and analysts were expecting between 59,000 and 62,000 new jobs for October. Instead, the economy added… 165,000. Yes. MORE THAN DOUBLE THE EXPECTED NUMBER. The median analyst estimate missed by 95,000 jobs.
And all this came just one month after September, which had delivered only 29,000 new jobs. It also came during a week that had already seen elections and a major sell-off in AI stocks. So what exactly did the report show, what is happening beneath the surface, and what does all this mean for the FED?
WHAT THE REPORT TOLD US
Let's start with the basics. The US economy added 165,000 nonfarm payroll jobs in October. Meanwhile, the unemployment rate fell to 4.1%, down from 4.2% in September.
And things get even more interesting here. Previous months were also revised upward. August was revised to 186,000 jobs, while September climbed from 29,000 to 60,000.
In total, that's 84,000 more jobs than we previously thought.
Wages also increased. Average hourly earnings rose 0.4% month over month and 3.1% year over year. Both figures came in above expectations.
So, who exactly was hiring? Almost everyone.
Professional and business services added 70,000 jobs. Healthcare added 42,000, transportation 25,000, and manufacturing 19,000.
On the other hand, leisure and hospitality lost 13,000 jobs, while construction shed 3,000.
And this matters. As Heather Long of Navy Federal pointed out, the US economy was adding just 10,000 jobs per month in 2025, with nearly all of them coming from healthcare.
Now, hiring is spreading across a much wider range of industries. In fact, the private sector recorded its strongest job growth since March.
WHAT DROVE THESE NUMBERS?
Consumers are still spending, and companies are still investing. That means demand remains strong, and businesses continue to need workers.
And this is exactly where artificial intelligence comes into the picture.
Data centers are supporting activity in construction and manufacturing. Nonresidential construction continued adding jobs, while residential construction lost positions.
Meanwhile, computer and electronics manufacturing added more jobs than at any point in the past four years.
At the same time, information technology and financial services, two sectors that have lost significant numbers of jobs this year partly because of AI, are showing early signs of stabilization.
But there's another important factor. The labor force grew by 421,000 people, after shrinking for some time due to demographic trends and lower immigration. The labor force participation rate also climbed to 61.9%, its highest level since March.
Of course, there's a big catch.
Anyone who loses their job is finding it increasingly difficult to get a new one.
The average unemployed American has now been out of work for 27.1 weeks. That's almost seven months, and the highest figure since September 2021.
Meanwhile, 1.96 million Americans have been unemployed for more than 27 weeks, representing 27.6% of all unemployed people.
The broader unemployment rate, known as U-6, climbed to 7.9%.
One reason? Another 339,000 people are now working part-time for economic reasons. In other words, they aren't doing so by choice.
And wages, growing at 3.1%, are still lagging behind inflation, which stood at 3.6% in September based on the PCE index.
In simple terms, we're looking at a labor market with relatively few hires and relatively few layoffs. If you have a job, you tend to keep it. If you don't, you may be waiting a long time to find one.
WHAT HAPPENS NEXT?
So, what's next?
Before the FED's December meeting, we'll get one more jobs report and the full set of inflation data. Prediction markets are currently expecting October inflation to come in at 3.7%.
Bloomberg analysts are putting it quite clearly: The labor market isn't cooling down as much as expected.
And other indicators point in the same direction. Job openings in September came in well above expectations. Quits reached their highest level since March 2025, while layoffs fell to their lowest level in more than a year.
Still, not everything is rosy.
Fitch warns that concerns about whether AI investments can be sustained represent a potential risk. Goldman Sachs ($GS) also argues that the impact of AI on employment is becoming increasingly visible.
And there's one more thing worth mentioning. Employment figures have been extremely volatile this year, with significant revisions from one month to the next.
On four other occasions this year, forecasts were off by similarly large margins.
THE FED'S DILEMMA
And this brings us to the FED.
Interest rates currently stand at 3.75% to 4.00%, following the September rate hike. The FED left them unchanged in October, and now everyone is looking ahead to the December 8-9 meeting.
Following the jobs report, the probability of another 0.25 percentage point rate hike jumped from around 67% on Thursday to more than 77%.
Yes, you read that correctly. In just one day, the market shifted its expectations by 10 percentage points.
Kevin Warsh himself had said the previous week that employment conditions were "quite positive" and that the FED was focusing on prices.
But analysts are divided.
Christopher Rupkey of FWDBONDS believes interest rates will go "much higher." Michael Kramer of Mott Capital argues that the FED made a mistake by not raising rates in October.
On the other hand, Bloomberg analysts still expect the FED to leave rates unchanged in December.
However, they acknowledge that the risk of another rate hike has increased.
And what about the markets?
Bonds reacted immediately. The 10-year Treasury yield climbed to 4.864%, while the 2-year yield rose to 4.522%.
Stocks, however, had a relatively muted reaction.