Guotai Haitong: U.S. Nonfarm Payrolls Exceed Expectations, December Rate Hike Expectations Rise

According to information from Zheshang Finance APP, Guotai Haitong released a research report saying that the nonfarm payrolls rebounded far beyond expectations, mainly due to the strength in professional services and healthcare. The unemployment rate fell while the participation rate rose, indicating that labor demand remains relatively robust. The October nonfarm payrolls data weakened the Federal Reserve’s rationale for maintaining a wait-and-see approach due to employment slowdown. At the October FOMC meeting, two voting members supported a rate hike; in the September dot plot, 16 out of 18 officials expected at least one more rate hike within the year; September core PCE YoY was still 3.1%, above the 2% target. After the data was released, according to CME data, the market expected the probability of a Fed rate hike in December to rise from 66.9% to 76.8%. The institution judges that the Fed may raise rates by 25 basis points in December, and if October CPI falls more than expected, it will reduce the urgency for a hike, but it is unlikely to change the direction.

Main points from Guotai Haitong are as follows:

Nonfarm payrolls rebounded above expectations, mainly due to strength in professional services and healthcare.

In October 2026, the US added 165,000 nonfarm jobs, far exceeding the market’s expectation of 70,000, and combined upward revisions of 84,000 jobs for August and September. Professional and business services added 70,000 jobs, the most since October 2022, including 33,000 jobs in professional, scientific, and technical services (which is somewhat leading), and 19,000 jobs in temporary help services; education and health services added 53,000 jobs, of which healthcare accounted for 42,000 jobs—together contributing over 70% of the new jobs. In addition, manufacturing saw a rebound in job growth, the employment diffusion index (1-month span) increased to 57.6, and the breadth of employment growth expanded.

The unemployment rate fell while the participation rate increased, and labor demand remains relatively robust.

In October, the US unemployment rate fell from 4.18% to 4.14%, below the market expectation of 4.2%; the labor participation rate rose to 61.9%, the third consecutive monthly increase. The labor force increased by 421,000 in October, while employment rose by 463,000, indicating that almost all new entrants found jobs. Since July, the participation rate has cumulatively risen 0.5 percentage points and the unemployment rate has stayed at 4.1%-4.2%, showing the labor market continues to absorb new supply, confirming the solid US economic sentiment. In terms of wages, the average hourly earnings in October grew 0.37% MoM seasonally adjusted, the highest since November 2025, which will support consumer spending from the income side, making a significant drop in core inflation less likely. However, the U6 unemployment rate and average unemployment duration both increased, so marginal employment for fringe groups has weakened.

Labor market resilience clears the path for a December rate hike.

The October nonfarm data weakened the rationale for the Federal Reserve to remain on hold due to employment slowing. At the October FOMC, two voting members supported raising rates; the September dot plot shows that 16 of 18 officials expected at least one more rate hike this year; September core PCE YoY was still 3.1%, above the 2% target. After the data release, CME data indicated that the market-implied probability of a December Fed rate hike increased from 66.9% to 76.8%. The institution believes the Federal Reserve may raise rates by 25 basis points in December; if October CPI falls more than expected, the urgency of a rate hike will be somewhat reduced, but the overall direction is unlikely to change.

Risk warning: The stalemate in Iran continues to push oil prices higher, and a more hawkish Federal Reserve could be beyond expectations.