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Broad-based strength in hiring in October signals the economy is shaking off the Covid-related slump of the third quarter and could grow faster than expected in the fourth quarter.

Employment increased by 531,000 in the month, with gains in many categories, including manufacturing, hospitality, professional and business services. The unemployment rate fell to 4.6%. Revisions to prior months’ data also added a total of 235,000 more payrolls in August and September.

“We’re reaccelerating as the delta wave abates and given the revisions, we’ve weathered the storm,” said Diane Swonk, chief economist at Grant Thornton. “It suppressed spending as people were afraid of the contagion during the delta wave, but it didn’t derail underlying employment, and now we’re picking up again.”

The economy slowed in the third quarter, as supply chain disruptions and Covid hampered activity. Gross domestic product grew by just 2%. Swonk had expected growth of 5% in the fourth quarter, but now she says it could be higher.

“It could be a little stronger with these numbers. There’s no question we’re going to end on a high note,” she said.

Economists had expected 450,000 jobs were created in October, up from September’s revised 312,000. There were some disappointments, including a decline in local and state government education jobs of nearly 65,000. Labor force participation also did not make expected gains and was unchanged at 61.6%.

But overall, economists saw the report as positive. “These numbers were great. The private sector is picking up the baton from the public sector,” said Swonk.

“The education losses really reflect the inability of schools to lure back staff workers and deal with the tsunami of retirements,” she added. “Public sector wages are just not going up at the pace of private sector. There’s no way they can compete. They really need to raise wages. These are low-paid jobs that are now competing with Amazon and Walmart.”

Michael Gapen, chief U.S. economist at Barclays, said the employment report shows the economy is back on track after the dip in third-quarter growth. “We’re not going to see what we saw in the first half of the year, but we’re not a 2% economy,” he said.

Wages continued to rise sharply, the latest sign that inflationary pressures are not abating. Gains in average hourly wages were again elevated, rising by 0.4% from the prior month, or 4.9% over the past 12 months.

While the wage component was hot and job growth strong, economists say the report does not change the dynamic yet for the Federal Reserve. However, a few more months of strong jobs growth could cause the central bank to reassess its timetable on winding down its bond program.

The Fed announced Wednesday that it would begin paring its bond purchases, ending the $120 billion monthly program by the middle of next year. Swonk expects the Fed will begin raising interest rates once it ends the program. She said the central bank could re-evaluate its timetable when it meets in December, if job growth remains strong.

Inflation is also a concern of the Fed. A worsening outlook for inflation could also lead policymakers to act faster to end the bond purchases, and begin battling high prices with higher interest rates, economists said.

Stephen Stanley, chief economist at Amherst Pierpont, notes the Fed could be forced to adjust its timing. “A few more reports like this one will bring the economy within hailing distance of full employment. This report is a significant step toward the [Federal Open Market Committee] needing to accelerate the pace of tapering early next year and ultimately having to raise rates earlier than policy makers currently anticipate,” he wrote, adding he expects the Fed to begin hiking interest rates in June.

Economists say the fact that job growth was broad-based was a positive for the economic reopening.

Professional and business services added 100,000 jobs, while manufacturing was also strong with a 60,000 gain. Transportation and warehousing workers increased by 54,400 and retail employment grew by 35,300. Construction jobs increased by 44,000.

Employment in leisure and hospitality increased by 164,000 and is now up 2.4 million in 2021. But the sector is still down 1.4 million jobs, or 8.2%, compared to February 2020.

The U.S. jobs market snapped back in October, with nonfarm payrolls rising more than expected while the unemployment rate fell to 4.6%, the Labor Department reported Friday.

Nonfarm payrolls increased by 531,000 for the month, compared to the Dow Jones estimate of 450,000. The unemployment rate had been expected to edge down to 4.7%.

Private payrolls were even stronger, rising 604,000 as a loss of 73,000 government jobs pulled down the headline number. October’s gains represented a sharp pickup from September, which gained 312,000 jobs after the initial Bureau of Labor Statistics estimate of 194,000 saw a substantial upward revision in Friday’s report.

The numbers helped allay concerns that rising inflation, a severe labor shortage and slowing economic growth would tamp down jobs creation.

“This is the kind of recovery we can get when we are not sidelined by a surge in Covid cases,” said Nick Bunker, economic research director at job placement site Indeed. “If this is the sort of job growth we will see in the next several months, we are on a solid path.”

The critical leisure and hospitality sector led the way, adding 164,000 as Americans ventured out to eating and drinking establishments and went on vacations again as Covid numbers fell during the month. For 2021, the sector has reclaimed 2.4 million positions lost during the pandemic.

Other sectors posting solid gains included professional and business services (100,000), manufacturing (60,000), and transportation and warehousing (54,000). Construction added 44,000 positions while health care was up 37,000 and retail added 35,000.

Wages increased 0.4% for the month, in line with estimates, but increased 4.9% on a year-over-year basis, reflecting the inflationary pressures that have intensified through the year. The average work week edged lower by one-tenth of an hour to 34.7 hours.

The unemployment rate drop came with the labor force participation rate holding steady at 61.6%, still 1.7 percentage points below its February 2020 level before the pandemic declaration. That represents just shy of 3 million fewer Americans considered part of the workforce and reflective of ongoing supply concerns.

“While the strength of employment was an encouraging sign that labor demand remains strong, labor supply remains very weak. The labor force rose by a muted 104,000, which is not even enough to even keep pace with population growth,” said Michael Pearce, senior U.S. economist at Capital Economics.

At the same time, the survey of households showed job holders rising by 359,000, leaving the employment level about 4.7 million below its pre-pandemic level.

A separate measure of unemployment that incudes discouraged workers and those holding part-time jobs for economic reasons fell to 8.3% from 8.5%. That rate was 7% prior to the pandemic.

The report comes amid heightened concerns about the state of the labor market, particularly a chronic shortage that has left companies unable to fill positions to scale back production and cut hours of operation.

Companies have been increasing wages and adding other incentives as the working share of the potential labor force operates well below its pre-pandemic level.

Since adding more than a million jobs in July, the labor market had slowed sharply through the rest of the summer, with sizeable letdowns in August and September as economists greatly overestimated growth in both months.

However, revisions showed that the numbers for those months weren’t quite as dismal. Along with the boost from September’s initial count, August’s final reading came up another 117,000 to 483,000.

Concerns linger, though, that the U.S. economy is slowing. Gross domestic product increased just 2% in the summer months, falling short of even the reduced expectations for gains during the pandemic-era recovery.

Recent data, though, has shown a progressive drop in weekly jobless claims, the result in good part from enhanced unemployment benefits expiring. Data Thursday showed productivity is running at a 40-year low and the trade deficit notched another record high, passing $80 billion for the first time.

Earlier this week, the Federal Reserve said job growth is strengthening enough for the central bank to begin cutting its monthly bond purchases, a cornerstone of its efforts to boost the economy during the pandemic. However, Chairman Jerome Powell stressed that the picture must continue to improve before the Fed starts raising interest rates.

The Federal Reserve announced Wednesday it soon will begin reducing the pace of its monthly bond purchases, the first step toward pulling back on the massive amount of help it had been providing markets and the economy.

Tapering of bond purchases will start “later this month,” the policymaking Federal Open Market Committee said in its post-meeting statement. The process will see reductions of $15 billion each month — $10 billion in Treasurys and $5 billion in mortgage-backed securities – from the current $120 billion a month that the Fed is buying.

The committee said the move came “in light of the substantial further progress the economy has made toward the Committee’s goals since last December.”

The statement, approved unanimously, stressed that the Fed is not on a preset course and will make adjustments to the process if necessary. (How tapering works)

“The Committee judges that similar reductions in the pace of net asset purchases will likely be appropriate each month, but it is prepared to adjust the pace of purchases if warranted by changes in the economic outlook,” the committee said.

The move was in line with market expectations following a series of Fed signals that it would begin winding down a program that accelerated in March 2020 as a response to the Covid pandemic.

Markets reacted positively, with stocks turning positive and government bond yields inching higher.

Along with the move to taper, the Fed also altered its view on inflation only slightly, acknowledging that price increases have been more rapid and enduring than central bankers had forecast but still not backing off use of the controversial word “transitory.”

“Inflation is elevated, largely reflecting factors that are expected to be transitory,” the statement said. “Supply and demand imbalances related to the pandemic and the reopening of the economy have contributed to sizable price increases in some sectors.”

Many market participants had expected the Fed to drop the transitory language in light of the persistent inflation gains.

“The Fed unveiled its QE taper today, as widely expected, but is still insisting that the surge in inflation is ‘largely’ transitory, which suggests the doves still have the upper hand,” wrote Paul Ashworth, chief U.S. economist at Capital Economics.

Fed Chairman Jerome Powell said he expects inflation to keep rising as supply issues continue and then start to pull back around the middle of 2022.

“Our baseline expectation is that supply chain bottlenecks and shortages will persist well into next year and elevated inflation as well,” he said. “As the pandemic supplies, supply chain bottlenecks will abate and growth will move up and as that happens inflation will decline from today’s elevated levels.”

The statement also noted that the economy is expected to continue improving, particularly after the supply chain issues are resolved.

“Progress on vaccinations and an easing of supply constraints are expected to support continued gains in economic activity and employment as well as a reduction in inflation,” the committee said.

The FOMC voted not to raise interest rates from their anchor near zero, a move also expected by the market.

The tie between interest rates and tapering is a vital one, and the statement stressed that investors should not view the reduction in purchases as a signal that rate hikes are imminent.

“We don’t think it’s time yet to raise interest rates,” Powell said. “There is still ground to cover” before the Fed reaches its economic goals. He added he wants to see the labor market “heal further, and we have very good reasons to think that will happen as the delta variant declines, which it’s doing now.”

On the current schedule, the reduction in bond purchases will conclude around July 2022. Officials have said they don’t envision rate hikes beginning until tapering is finished, and projections released in September indicate one increase at most coming next year.

Markets, though, have been more aggressive in pricing, at one point indicating as many as three increases next year. That sentiment has cooled off some in recent days as Wall Street anticipated a more dovish Fed as it tries to balance slowing growth and rising inflation.

Inflation has been running at a 30-year high, pushed by a clogged supply chain, high consumer demand and rising wages that have stemmed from a chronic labor shortage. Fed officials maintain that inflation eventually will drift back to their 2% target, but now say that could take longer.