The U.S. labor market got back on track last month with a larger-than-forecast and broad-based payrolls gain, indicating greater progress filling millions of vacancies as the effects of the delta variant faded.
Nonfarm payrolls increased 531,000 last month after large upward revisions to the prior two months, a Labor Department report showed Friday. The unemployment rate fell to 4.6% while the labor force participation rate was unchanged.
Payroll gains last month were led by a 164,000 increase in leisure and hospitality. Professional and business services, transportation and warehousing, and manufacturing also posted significant advances. Hiring at temporary help services rose the most since February, indicating companies are having success luring workers for the holiday-shopping season.
Factory employment jumped by 60,000 in October, the most since June of last year and largely reflecting a surge in automakers’ payrolls. That, combined with job gains in transportation, could help ease supply chain bottlenecks. At the same time, state and local government education payrolls slipped, weighing on broader public sector employment.
The data paint a sunnier picture of the job market than previously thought, with easing Covid-19 cases and higher wages helping employers fill near-record openings. At the same time, the labor-force participation rate has barely budged in recent months as millions of Americans remain on the sidelines.
The figures help validate the Federal Reserve’s decision this week to begin scaling back its pandemic-era pace of bond-buying aimed at keeping borrowing costs ultra-low. They may also give a boost to President Joe Biden as his approval ratings sag and he struggles to get more than $2 trillion in tax and spending proposals through Congress.
The median estimate in a Bloomberg survey of economists called for a 450,000 payrolls gain and for the jobless rate to fall to 4.7%. U.S. stocks advanced and the yield on the 10-year Treasury note declined.
Average hourly earnings rose 4.9% in October from a year ago, the most since February, though inflation is taking a bigger bite out of workers’ paychecks. The increase underscores workers’ ability to demand higher pay amid an ongoing labor shortage.
“The only thing missing now is an upturn in participation as the market tightens and wages rise further,” Sal Guatieri, senior economist at BMO Capital Markets, said in a note. “Continued weakness in participation will only grease the jobless rate’s decline -- which could very well lead to a faster pace of tapering and earlier rate hikes.”
Higher wages could mean that more businesses raise prices to protect margins as the costs of labor, materials and transportation climb, stoking inflation. Prices have increased by the most in three decades on a year-over-year basis, driven by supply chain disruptions and shortages.