US economy adds 531K jobs in October, surging past expectations

U.S. employers' hiring surged in October as the number of new infections caused by the COVID-19 delta variant slowed and the expiration of extended unemployment benefits moved farther in the rearview mirror.  

Nonfarm payrolls increased by 531,000 workers last month as the unemployment rate fell 0.2 percentage points to 4.6%, the Labor Department said Friday. Economists surveyed by Refinitiv were expecting the addition of 450,000 jobs and the unemployment rate to slip to 4.7%. 

The job gains in September were revised up to 312,000 from the prior reading of 194,000. 

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"The pace of hiring rebounded in October as Covid-19 restrictions eased and cases declined," said Jay Pestrichelli, CEO of ZEGA Financial. "The labor market is not back to pre-Covid-19 levels, but it has staged an impressive comeback over the past 18-months."

The labor market also received a boost as more workers sought jobs after the $300 per week in supplemental unemployment benefits expired in September.  

Notable gains occurred in leisure and hospitality, where the addition of 164,000 jobs boosted the hiring total in the sector to 2.4 million workers so far this year. Within the space, strong gains were seen in food services and drinking places (+119,000) and in accommodation (+23,000).

Professional business services (+100,000) and manufacturing (+60,000) also showed sizable gains. 

Employment decreased in local government education (-43,000) and in state government education (-22,000).

Average hourly earnings rose 0.4% in October and were up 4.9% year over year. Economists were expecting a 0.4% monthly increase and a 4.9% year-over-year gain. 

While investors are cheering the report, some are concerned with the labor force participation holding at 61.6%, 1.7 percentage points below its February 2020 level. The rate has remained between 61.4% and 61.7% since June 2020.   

"What’s keeping so many people from coming back into the labor force now we’re seeing trends in Covid cases falling, and the advances of treatments and therapeutics? It’s a bit of a mystery," said Cliff Hodge, chief investment officer for Cornerstone Wealth.

Still, market participants say the report puts the Federal Reserve on track to forge ahead with the tapering of its asset purchase program and to begin raising rates next year.

The Fed on Wednesday announced plans to begin scaling back its purchases of $120 billion per month in Treasurys and mortgage-backed securities beginning later this month. Market participants are currently pricing in the first rate hike to occur in July.  

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"It's become clear that the economy isn't in need of such massive support from the central bank," said Pestrichelli.