• October nonfarm payrolls rose by 165,000, far exceeding forecasts of 59,000–65,000, while unemployment fell to 4.1%.
  • Fed's Mary Daly calls the report "good news" for the labor market but cautions that wage growth is not booming and real wages are falling.
  • Daly emphasizes that inflation has been too high for too long, and she needs greater confidence in the inflation outlook before supporting a policy shift.

A Strong Report, But Wages Lag

The U.S. labor market delivered a surprisingly robust October employment report, with nonfarm payrolls increasing by 165,000—well above economist expectations of roughly 59,000 to 65,000. The unemployment rate ticked down to 4.1% from 4.2%, even as 421,000 people entered the labor force. Upward revisions to August and September added a combined 84,000 jobs, painting a picture of a labor market that is stronger than previously thought.

Federal Reserve Bank of San Francisco President Mary Daly welcomed the data as "good news" for the U.S. workforce, but she was quick to temper enthusiasm. Speaking on Friday, Daly stressed that wage growth is not booming and that real wages—adjusted for inflation—are falling. Average hourly earnings rose 0.4% in October and 3.1% from a year earlier, a slowdown from September's revised 3.2% annual gain. Meanwhile, consumer inflation stood at 3.7% annually in September, meaning workers' purchasing power is eroding.

Inflation Still the Priority

For Daly, the jobs report does not alter the fundamental challenge: inflation remains too high. "Prices have been rising too quickly for too long," she said, adding that she wants greater confidence in the inflation outlook before the Fed can consider easing its stance. Her comments come after the central bank held its benchmark rate steady at 3.75%–4.00% on October 28, following a quarter-point increase in September.

The Fed's official statement described economic activity as expanding at a "strong pace" while inflation remained elevated. October's employment report reinforces that assessment, giving policymakers more latitude to prioritize price stability rather than fret about an imminent downturn in hiring. Markets initially read the data in that light: Treasury yields climbed and attention shifted to the possibility of another rate increase in December, according to people familiar with the matter.

Yet Daly's nuanced message underscores a delicate balance. Strong hiring does not necessarily signal a wage-price spiral—annual wage growth actually slowed last month. Economists and Fed officials continue to view the labor market as unlikely to pose a significant inflation risk on its own, especially with energy costs adding to price pressures from abroad. The Iran war and associated energy shock have complicated the Fed's task, keeping inflation elevated even as the job market hums along.

A Political and Economic Tightrope

The apparent disconnect between solid job creation and households' frustration over affordability has not gone unnoticed. Reporting around this week's midterm elections highlighted voters' anxiety over purchasing power, even as the unemployment rate remains low. Daly's remarks reflect that tension: employment can be "good news" while real wages decline, leaving many families feeling worse off.

For workers already employed, low layoffs offer job security, but wage gains below inflation mean less money in their pockets. Job seekers and recent graduates face a different challenge—a low unemployment rate does not guarantee easy access to new opportunities, and reporting suggests reduced leverage for job switchers. Employers, meanwhile, are navigating resilient demand alongside elevated costs and rapid technology adoption, contributing to what economists describe as an increasingly "job-light" expansion.

The next tests for the Fed will be October's inflation data and the November jobs report, scheduled for release on December 4, just ahead of the December 9 policy meeting. Those figures will help determine whether October's hiring strength is durable and whether price pressures are finally easing. For now, Daly's message is clear: the labor market is a bright spot, but the fight against inflation is far from over.

Correction: An earlier version of this article misstated the timing of the Fed's September rate decision. It was a quarter-point increase, not a cut.