The "low hiring, low firing" labor market faces yet another test on Friday, November 6, one of the final checkpoints before the Federal Reserve decides whether to raise rates again.
Economists' consensus expectation is that the U.S. Bureau of Labor Statistics will report roughly 59,000 new jobs for October. That would more than double September's 29,000 — a figure that came in far below expectations and was accompanied by downward revisions to July and August payrolls. The unemployment rate is expected to hold at 4.2%, after a modest 0.1 percentage point rise the previous month. One institution noted in a report that continuing claims data "indicate that economy-wide layoffs remain contained."
A Shrinking Labor Pool: Average Hiring of 68,000 Is Enough to Keep Unemployment Steady
Through September, average hiring ran at about 68,000 per month, up from 15,000 per month in 2025. That is sufficient to keep the unemployment rate stable, because retirements and reduced immigration are shrinking the pool of people entering the labor force. A chief economist at one institution said employers may not need to add a single job nationwide to prevent the unemployment rate from rising. "The labor market is contracting," she wrote in her analysis. The implication of that judgment is clear: a stable unemployment rate does not equal a healthy job market — it may reflect a shrinking labor supply rather than strong demand.
Real Income Eroding: Hourly Wages Up About 2.9% Year-on-Year, Below the 3.7% Inflation Rate
But a stable job market is not necessarily a healthy one. Forecasters expect average hourly earnings to rise 0.3% month-on-month in October, versus 0.1% in September; that would put wage growth at roughly 2.9% year-on-year, while the 12-month inflation rate through September stood at 3.7% — meaning wages are losing ground to prices. An analysis of customer deposits at one institution shows the degree to which inflation is outpacing wages varies: after-tax income for low-income households rose 4.7% year-on-year in October, compared with 3.8% for middle-income households and 3.4% for high-income households. The bank's data also shows that job-switching pay raises for low- and middle-income workers outpace those for high-income workers.
The Fed's Dilemma: A "Squeezed" Job Market, With December Rate Hike Odds Above 80%
A senior director of economic research at one institution said: "The October employment report may show little change in the health and direction of the U.S. labor market." A chief economist at another institution said: "This is an environment in which everyone is being squeezed." That squeeze is also the Fed's predicament. The central bank held its benchmark rate at 3.75% to 4% last month, after delivering its first rate hike since 2023 the month before, with two of 12 voters favoring another 25 basis point increase. The November employment report will be released on December 4, ahead of the Fed's December 9 meeting — the last of the year. According to the CME FedWatch tool, traders currently price in more than an 80% probability of a hike at that meeting, and analysts note that an employment report close to expectations could keep the Fed on that path.
Editor's Summary
The October nonfarm payroll consensus points to a modest rebound that is still far from historical norms, with a stable unemployment rate reflecting a shrinking labor supply rather than a demand recovery. Real incomes continue to lag inflation, with pressure especially pronounced for low- and middle-income households. The Fed faces dual constraints from employment and inflation, and data close to expectations will keep December rate hike odds elevated, with the final decision still depending on how subsequent inflation and growth signals evolve.
Frequently Asked Questions
Q: Why can the unemployment rate hold steady with only about 60,000 new jobs? A: The key lies in the continued shrinkage of the labor supply pool. A rising retired population combined with slower immigration has significantly reduced the number of people entering the labor market each month. Current average monthly hiring of about 68,000 is enough to match the reduced supply, thereby keeping the unemployment rate near 4.2%. This is not a sign of strong demand but the result of both supply and demand cooling in tandem. If labor force participation falls further, the unemployment rate could remain stable or even decline even with lower hiring. The market is therefore paying more attention to the structural mismatch between long-term unemployment and job vacancies than to the headline payroll number alone.
Q: Why is 2.9% year-on-year hourly wage growth still seen as a real income decline? A: Because inflation over the same period was about 3.7%, nominal wage growth continues to lag price increases, and real purchasing power is falling. Although after-tax income for low-income households grew 4.7%, inflation erosion is more pronounced for them; middle- and high-income groups grew even more slowly. Job-switching pay raises are higher for low- and middle-income groups, but overall they still cannot fully offset price pressure. This pattern directly suppresses consumer willingness and is a factor the Fed must weigh when assessing "overheating risk." If wage data unexpectedly accelerate, it could reinforce rate hike expectations; if it remains weak, it deepens the policy dilemma.
Q: Why does the Fed still maintain high rate hike odds even as employment slows? A: The core issue is sticky inflation and a labor market that is "squeezed" rather than collapsing. The central bank held steady last month, but December rate hike odds remain elevated, reflecting officials' caution about the pace of inflation's decline. If employment data come in close to consensus, it means there is neither a large-scale layoff risk nor overheating pressure, and the policy path can continue to lean toward tightening. What truly changes pricing tends to be wage and revision details: a significant upward revision or accelerating wages would push rate hike odds higher, while a clear downward revision could prompt the market to reprice. The November report on December 4 will be the final key window.
Q: What does "low hiring, low firing" mean for the economy? A: It is a classic "frozen" state. Companies are neither willing to hire aggressively nor to lay off heavily, reflecting hesitation about the demand outlook. A stable unemployment rate masks the fact that labor supply is shrinking, and the mismatch between the long-term unemployed and available vacancies may continue to accumulate. For growth, this means employment's contribution to GDP weakens, and consumption relies more on improvements in real income. If subsequent data confirm this pattern has become entrenched, the Fed may need to fine-tune its path more carefully between "fighting inflation" and "preventing excessive cooling," rather than simply relying on employment numbers.
Q: How might this nonfarm payrolls report affect the dollar and Treasuries? A: Moderate data in line with consensus usually leaves limited movement in the dollar and Treasury yields, since the rate hike path is already partly priced in. If payrolls and wages are significantly stronger than expected, the dollar could strengthen and yields could rise; if they fall far short of expectations and come with downward revisions, it could trigger a dollar pullback and lower yields. The market is paying more attention to revisions and wage details than to a single headline number. In the final weeks before the December policy meeting, any upside surprise could amplify volatility, and investors need to track both inflation and consumption data to judge the pace of any policy shift.
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