Hiring surges: Economy added 271K jobs in October

Last Updated Nov 6, 2015 10:32 AM EST

The U.S. economy in October recorded its largest jump in employment this year, as Americans also took home larger paychecks and the jobless rate declined to 5 percent, a seven-year low. Rebounding after a two-month slowdown, the labor market's resilience bolsters the case for a hike in interest rates by the Federal Reserve next month.

"It's a very positive report," JJ Kinahan, chief strategist for TD Ameritrade, said. "More people are working, nothing solves economic ills like people having money in their pocket, and continue to buy homes and clothes. As we head into the retail season, it could be a bright one for retailers."

The U.S. economy added 271,000 jobs in October, the Labor Department said Friday, surpassing analysts' expectations of 185,000 jobs. The unemployment rate fell to 5 percent from 5.1 percent. Average hourly earnings gained 0.4 percent from September, the most in more than six years, after a 2.3 percent rise the month before.

The increase in pay follows an extended time of fairly flat pay raises for many, and October's hiring helped push up wages 9 cents to $25.20, up 2.5 percent from the year-earlier period and the biggest year-over-year rise since July 2009.

Interest rates have been at record lows since the 2008 financial crisis. Testifying before a committee of the U.S. Congress on Wednesday, Fed Chair Janet Yellen described the U.S. economy as "performing well" and said an interest rate hike in December was a "live possibility."

Yellen and the central bank's "change in communication, the faster dissipation in uncertainty, and a very solid payroll report necessitate a change in our call to December," Barclays analysts Michael Gapen and Rob Martin wrote in a research note. "We now forecast a federal funds range of 25-50 basis points in December, up from the current 0-25 basis points."

The market also reflected an increased bet on hike next month in the wake of the hiring surge.

"It seems hard to believe the Fed isn't looking at this and saying, 'we may have to do something here'," said Kinahan. "The probability of a December hike just flew up to 73 percent. Going into the last Fed meeting that number was 33 percent."

A separate report earlier this week by ADP said private businesses added 182,000 jobs last month, but the Labor Department's survey is more comprehensive.

Friday's report contained some revisions: September's job growth was revised down to 137,000, from 142,000; August's numbers were revised up to 153,000, from 136,000.