Nonfarm payrolls jumped in October, nearly triple estimates, pushing December hike odds close to 80%
The US economy added 165,000 nonfarm payroll jobs in October, nearly triple the 59,000 Wall Street had forecast, in a labor market reading that has sharply raised the probability of a Federal Reserve rate hike at the central bank’s December 8–9 meeting.
The Bureau of Labor Statistics (BLS) reported Friday that the unemployment rate edged to 4.1%, beating the consensus estimate of 4.2%.
Average hourly earnings climbed 0.4% for the month and 3.1% annually.
Prior months were also revised higher: August moved to 186,000 — a 53,000 upward revision — and September to 60,000 following a 31,000 adjustment.
“Today’s jobs report is a strong rebuttal to fears that the economy is heading into a meaningful slowdown,” said Seema Shah, chief global strategist at Principal Asset Management.
“Payrolls growth surprised firmly to the upside, unemployment fell back to 4.1%, and job creation remains broad-based, pointing to an economy that is still absorbing labor comfortably rather than one beginning to buckle under tighter financial conditions.”
What the data means for December
CME FedWatch odds of a December hike jumped to roughly 77% following the BLS release.
Mike Fratantoni, chief economist and senior vice president of research and business development at the Mortgage Bankers Association (MBA) in Washington, DC, reacted directly to Friday’s data.
His conclusion on the Fed’s next move was unequivocal: “A resilient job market, combined with inflation that is still too high, is likely to lead the FOMC to hike rates in December. MBA anticipates another hike as well in the first quarter of 2027.”
That assessment aligns with the MBA’s earlier forecast for December and Q1 2027 rate increases, which had projected 30-year mortgage rates above 7% through all of next year.
Melissa Cohn, regional vice president of William Raveis Mortgage in New York and a 44-year industry veteran, had warned following October’s rate hold that “the bond market expected the Federal Reserve to leave interest rates unchanged at today’s meeting, but anticipates one or two rate increases in the coming months, possibly beginning in December.” Friday’s data makes that assessment look prescient.
What brokers should watch
Fratantoni offered a more cautious read beneath Friday’s headline figure — one with direct implications for how brokers assess borrower capacity.
“While the headline unemployment rate decreased, some of this was due to individuals taking part-time work when they would have preferred a full-time position. The U-6, which more broadly captures underemployment, increased to 7.9 percent from 7.6 percent the prior month. Individuals who have lost jobs are also finding a difficult time getting back in, as the median and average length of unemployment spells are increasing.”
Residential construction shed more than 15,000 jobs in October, a direct consequence of the rate environment depressing purchase demand.
Eric Orenstein, senior director at Fitch Ratings, was blunt on the origination consequences.
“Short-term rates were held flat today but the market expects tighter monetary policy down the line, propping up mortgage rates above 7% for the near term. We expect the smaller origination market in 2027 to limit earnings upside for mortgage companies.”
Barry Habib, CEO of MBS Highway, cautioned in our analysis of whether Fed rate increases could actually lead to lower mortgage rates that the link between central bank policy and borrowing costs is not straightforward.
“That 2-year Treasury yield right now is telling us that the Fed probably needs to raise another half a percent,” Habib said.
“But it doesn’t necessarily mean a bad thing for mortgage rates. They tend to be correlated at times.”
For brokers advising clients on lock timing and rate volatility, his warning is direct: “You have to tell your clients that they’ve got to be on guard. They’ve got to expect sudden price swings because of the MOVE index, and the spreads may change as well.”
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