(CN) — The U.S. economy added 261,000 jobs in October while the unemployment rate unexpectedly jumped up to 3.7%.
It marks the third straight month that payroll growth has declined, but the latest jobs report released Friday by the Labor Department beat the Dow Jones estimate of 205,000 new jobs last month.
The unemployment rate was higher than the 3.5% predicted by economists but is still low by historical standards.
“No one should be concerned that the U.S. labor market is about to start sinking. Joblessness is still low and job growth is strong, but today’s report shows it may be springing some leaks," wrote Nick Bunker, economic research director for North America at Indeed Hiring Lab. "The hope is that the labor market is merely returning to a more normal pace, rather than sitting dead in the water."
Michael Pearce, senior U.S. economist at Capital Economics, said the better-than-expected job growth and rising wages – averagely hourly earnings were up 0.4% from September and 4.7% from a year ago – means the Federal Reserve is likely to keep raising interest rates in an effort to tame inflation.
“The labour market has held up better than expected this year and with wage growth still too hot for the Fed, there is little to suggest that officials will drop their hawkish bias any time soon,” Pearce wrote.
The central bank raised its benchmark interest rate by three-quarters of a point for the fourth straight time on Wednesday, putting it at the highest level in 15 years. It was the sixth rate hike this year, part of an aggressive plan to curb soaring inflation, which hit a 40-year high this summer.
The bright spot for the Fed in Friday’s jobs report is that the labor market appears to be softening heading into the winter months. The 261,000 jobs added last month marks a downturn from revised gains of around 300,000 in September and August.
October payroll growth was driven by 53,000 new jobs in health care and 43,000 in professional and technical services. The manufacturing sector added 35,000 positions while the social assistance field gained 19,000.
The leisure and hospitality industry, which has led the way in hiring for much of the economic recovery after being hit hardest by pandemic lockdown orders, added 35,000 jobs in October, less than half of its monthly average of 78,000 so far this year. Employment in leisure and hospitality is still down by 1.1 million compared to February 2020.
In the public sector, there were 29,000 more jobs in local government last month and 6,000 more at the federal level, but 7,000 fewer jobs in state government.
Bunker said that while the labor market is still holding strong, that won’t always be the case.
“Everything might seem calm on the surface of today’s jobs report, but a look below the surface reveals some troubling currents,” he said. “Payroll growth is still strong, but some previous leading sectors are pulling back. Unemployment is still low but rates of job finding are declining and the prime-age employment to population ratio dropped dramatically.”
Pearce said the three-month average of 289,000 jobs added is “still unusually strong” and that even with higher unemployment, “the data are still only consistent with a slowing economy, not one already in recession.”
President Joe Biden said in a statement Friday morning that the economic recovery remains strong and he is committed to bringing inflation down.
“Inflation is our top economic challenge, and I know that American families are feeling squeezed. The global inflation that is raging in other countries is hitting us as well,” he said. “I’ve got a plan to bring costs down, especially for health care, energy, and other everyday expenses. And we’re already making progress – the cost of gas at the pump is down over $1.20 a gallon since this summer.”
The president also pushed back on Republican proposals to cut corporate taxes as a way to combat inflation.
“I will continue to work for an economy built from the bottom up and the middle out, not the top down as my Republican friends would have,” Biden said.
Read the Top 8
Sign up for the Top 8, a roundup of the day's top stories delivered directly to your inbox Monday through Friday.