WASHINGTON, D.C.: The US economy added far more jobs than expected in October, while the unemployment rate fell to 4.1 percent, pointing to renewed strength in the labor market and increasing expectations that the Federal Reserve will raise interest rates in December.

Nonfarm payrolls increased by 165,000 jobs, substantially exceeding economists' forecasts of 65,000, according to the Labor Department's employment report released on November 6.

The unemployment rate declined from 4.2 percent in September, despite 421,000 people entering the labor force. The report also showed that employment gains in August and September were a combined 84,000 higher than previously estimated.

September's job growth was revised upward to 60,000 from 29,000, while August's figure increased to 186,000 from 133,000.

The stronger-than-expected figures followed data earlier in the week showing an increase in September job openings and historically low layoffs, raising the possibility that the labor market could tighten after weakening during the summer.

"The economy is either at or very near full employment," said Carl Weinberg, chief economist at High Frequency Economics. "We expect the Fed to pivot to focus on the risk of labor demand exceeding labor supply at current levels of demand growth."

Professional and business services led October's employment gains, adding 70,000 jobs, well above the industry's average monthly increase of 15,000 over the previous year.

Healthcare employment rose by 42,000, while transportation and warehousing added 25,000 positions.

Manufacturing payrolls increased by 19,000, with gains in computer and electronic products, machinery and primary metals, potentially reflecting investment in artificial intelligence infrastructure.

Retail, financial activities and government employment also recorded modest increases.

However, construction lost 3,000 jobs, while leisure and hospitality employment declined by 13,000.

The proportion of industries reporting employment growth increased to 57.6 percent from 54.2 percent in September.

Financial markets raised their expectations of a Federal Reserve interest-rate increase in December following the report. CME's FedWatch tool showed traders pricing in a roughly 76.8 percent probability of a hike, compared with 66.9 percent on November 5.

The Fed left its benchmark overnight interest rate unchanged at 3.75 percent to 4 percent last week. October's consumer inflation report, due next Tuesday, could provide further indications about monetary policy heading into 2027.

The US dollar strengthened against a basket of currencies, while Treasury yields rose.

Economists estimate that the economy needs to create at least 40,000 jobs monthly to keep pace with growth in the working-age population, down from approximately 150,000 in 2024 because of the smaller labor force.

Household employment increased by 463,000 in October, although the number of people working part-time for economic reasons rose by 339,000 to 4.840 million. Many unemployed workers also continued to experience prolonged periods without jobs.

Despite stronger hiring, employment growth has lagged broader economic expansion. Gross domestic product increased at an annualized rate of 3.4 percent in the third quarter, supported by consumer spending and substantial business investment in AI.

Economists said some employers may have overhired following the COVID-19 pandemic, while uncertainty over staffing needs as businesses adopt AI could be restraining recruitment.

The US-Israeli war with Iran and its impact on energy prices have also contributed to employers' reluctance to expand their workforces.

Wage growth remained moderate, suggesting that the labor market was not yet generating significant inflationary pressure.

Average hourly earnings rose 3.1 percent in the 12 months through October, compared with 3.2 percent in September. The average workweek remained unchanged at 34.4 hours.