(photo courtesy of Cummins Inc.)

U.S. businesses reported strong hiring and wage increases in October although the unemployment rate climbed, offering a mixed picture as Federal Reserve officials debate how long to extend their campaign to curb elevated inflation.

Nonfarm payrolls increased 261,000 last month following an upwardly revised 315,000 gain in September, a Labor Department report showed Friday. Those figures were derived from a survey of businesses, while one of households painted a weaker picture with higher joblessness, particularly among women.

The unemployment rate increased by 0.2 percentage point to 3.7%, more than forecast, as participation edged lower. Average hourly earnings accelerated from the prior month.

The median estimate in a Bloomberg survey of economists called for a 193,000 advance in payrolls and for the unemployment rate to edge up to 3.6%.

Job gains were relatively broad based, with categories like health care, professional and business services and manufacturing posting solid increases.

The report suggests demand for workers remains robust despite rapid interest-rate hikes and a darkening economic outlook. Layoffs, while rising, are still historically low, and competition to fill millions of vacant positions has driven rapid wage gains.

While that’s helped underpin consumer spending—the engine of the economy—it’s also made the Fed’s efforts to cool inflation more difficult and suggests the central bank will maintain its resolute tightening campaign in the months ahead.

Fed officials have repeatedly emphasized that in order to meet their inflation goal, they need to bring labor supply and demand more into balance. Chair Jerome Powell, speaking after the central bank raised rates by another 75 basis points on Wednesday, said that job-market conditions haven’t softened yet in an “obvious” way.

Treasury yields fluctuated, while S&P 500 index futures remained higher and the dollar fell slightly. Traders are still leaning toward a downshift in the Fed’s pace of tightening to 50 basis points in December.

Looking ahead, the most aggressive Fed tightening since the 1980s is set to weigh on hiring. While Powell described the labor market as “very, very strong,” he also said it takes time for higher interest rates to work through the economy. Powell voiced hope that could come about mainly through a drop in vacancies rather than via outright job losses.

The figures also represent the last hallmark economic report ahead of the midterm elections next week. The economy has consistently ranked among voters’ top priorities this cycle and will likely be a key factor in whether Republicans take control of the House, Senate or both. President Joe Biden has repeatedly emphasized the strength of the job market in an effort to show that the economy remains on strong footing despite decades-high inflation and a potentially looming recession.

Friday’s report showed average hourly earnings were up 0.4% from September and were up 4.7% from a year earlier. Even so, many workers’ wages are not keeping up with inflation, something that’s started to have an impact on consumer behavior.

So far, Americans have largely held up in the face of persistently high inflation, but many families are tightening their belts. Credit card companies including Mastercard Inc. and Visa Inc. saw spending slow in the latest quarter, and Amazon.com Inc. is projecting the slowest holiday-quarter growth in its history.

Sectors like tech and real estate, which are more sensitive to interest-rate hikes, are already feeling the pinch of tighter Fed policy. Apple Inc. paused hiring for many jobs outside of research and development while Amazon has effectively stopped recruiting for new roles companywide. Meantime, Opendoor Technologies Inc. and Zillow Group Inc. have let staff go amid a deep slide in the housing market.

The labor force participation rate—the share of the population that is working or looking for work—ticked lower to 62.2%, and the rate for workers ages 25-54 dropped to a three-month low.

The underemployment rate, which includes those who are unemployed, marginally attached to the labor force or working part-time for economic reasons, edged up but remains historically low.

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