US Jobs Rise While Unemployment Drops, Keeping Pressure on Fed

US employers continued to hire at a solid pace last month and the jobless rate unexpectedly returned to a historic low, indicating a sturdy labor market that puts the inflation-focused Federal Reserve on course for another outsize interest-rate hike.

Nonfarm payrolls increased 263,000 in September after a 315,000 gain in August, a Labor Department report showed Friday. The unemployment rate unexpectedly dropped to 3.5%, matching a five-decade low. Average hourly earnings rose firmly.

The median estimates in a Bloomberg survey of economists called for a 255,000 advance in payrolls and for the unemployment rate to hold at 3.7%. Hiring was relatively broad based, led by gains in leisure and hospitality and health care. Meanwhile, employment in transportation and warehousing and financial activities declined.

The figures are the latest illustration of the perennial strength of the US job market. While there have been some indications of moderating labor demand -- most notably a recent decline in job openings and an uptick in layoffs in some sectors -- employers, many still short-staffed, continue to hire at a solid pace. That strength is not only underpinning consumer spending but also fueling wage growth as businesses compete for a limited pool of workers.