U.S. job growth accelerated in October after hurricane-related disruptions in the prior month, but a sharp retreat in annual wage gains and surge in the number of people dropping out of the work force cast a cloud over the labor market.
Nonfarm payrolls increased by 261,000 jobs last month as 106,000 leisure and hospitality workers returned to work, the Labor Department said in its closely watched employment report on Friday. That was the largest gain since July 2016, but was below economists' expectations for an increase of 310,000 jobs.
Data for September was revised to show a gain of 18,000 jobs instead of a decline of 33,000 as previously reported. Some aspects of the report, however, were downbeat. Although the unemployment rate fell to near a 17-year low of 4.1 percent, it was because 765,000 people dropped out the labor force.
The labor force participation rate, or the proportion of working-age Americans who have a job or are looking for one, fell four-tenths of a percentage point to 62.7 percent.
Average hourly earnings slipped by one cent, leaving them unchanged in percentage terms, in part because of the return of the lower-paying industry workers. That lowered the year-on-year increase to 2.4 percent, which was the smallest since February 2016. Wages shot up 0.5 percent in September, lifting the annual increase in that month to 2.9 percent.
Still, October's employment growth acceleration reinforced the Federal Reserve's assessment on Wednesday that "the labor market has continued to strengthen," and probably does little to change expectations the U.S. central bank will raise interest rates in December.
But weak wage growth and the drop in the labor force participation rate could worry some policymakers.
Prices of U.S. Treasuries rose after the data while the dollar fell against a basket of currencies. U.S. stock index futures slightly extended gains.
The Fed kept rates unchanged on Wednesday and financial markets have almost priced in an increase in borrowing costs in December. The Fed has hiked rates twice this year.
The sharp moderation in job growth in September was blamed on hurricanes Harvey and Irma, which devastated parts of Texas and Florida in late August and early September and left workers, mostly in lower-paying industries such as leisure and hospitality, temporarily unemployed.