US Labor Market Stumbles in September: Just 29,000 Jobs Added, Unemployment Climbs to 4.2%

The US economy added far fewer jobs than expected in September, signaling an unexpected soft patch in the labor market and raising fresh questions about the broader economy's trajectory. Nonfarm payrolls rose by a seasonally adjusted 29,000 for the month, while the unemployment rate ticked up to 4.2%, according to Friday's report from the Bureau of Labor Statistics. Economists surveyed by Dow Jones had projected job growth of 84,000 and an unemployment rate of 4.1%. Revisions Paint an Even Weaker Picture Beyond September's disappointing numbers, prior months were also revised downward. August's job gains were revised lower to 133,000, while July flipped from a reported gain to an outright loss of 10,000 jobs. Combined, the revisions erased 60,000 jobs from previous estimates. Markets React Favorably, Anticipating Fed Caution Despite the weak headline numbers, markets responded positively, with traders interpreting the soft data as increasing the likelihood that the Federal Reserve will hold interest rates steady at its October meeting. Stock futures rose sharply following the report, while Treasury yields eased after recently climbing to levels not seen in decades. According to CME Group's FedWatch tool, market-implied odds of the Fed holding rates steady in October jumped to 82.8%. Thomas Simons, chief US economist at Jefferies, said in a note that the report should effectively rule out an October rate hike, adding that August's stronger numbers now appear to have simply been a rebound from unusually weak hiring in June and July rather than a sign of sustained momentum. A Mixed Signal From Two Different Surveys Fed officials tend to focus more closely on the unemployment rate than the headline payrolls figure. Notably, the household survey used to calculate unemployment showed considerably more strength than the establishment survey used for the payrolls count. Household employment rose by 406,000 for the month, and the labor force expanded by 485,000. The labor force participation rate climbed 0.2 percentage points to 61.8%, its highest level since May. A broader measure of unemployment, which includes discouraged workers and those holding part-time jobs for economic reasons, fell to 7.6%, its lowest reading since January 2025. Fed Policy Implications The report arrives as Federal Reserve officials continue weighing economic conditions ahead of their next interest rate decision. Following recent comments from central bank policymakers, markets have adjusted expectations and now anticipate the Federal Open Market Committee will hold off on its next rate move until December. The FOMC raised rates by a quarter percentage point in September. Policymakers have generally viewed inflation as a greater economic risk than labor market weakness, particularly given recent resilience in hiring data, low weekly jobless claims, and layoff rates at their lowest level in four years. Still, inflation remains well above the Fed's 2% target, with the central bank's preferred inflation gauge most recently showing core inflation running at a 3% annual rate. Wage Growth Slows Further Wage growth continued showing signs of cooling. Average hourly earnings rose just 0.1% in September, bringing the 12-month wage gain to 3% — the lowest annual rate since May 2021. Wall Street had expected monthly and annual gains of 0.3% and 3.1%, respectively. The average work week held steady at 34.6 hours. Heather Long, chief economist at Navy Federal Credit Union, said Americans are growing frustrated by limited job opportunities, noting that wage growth has fallen to a five-year low and is effectively being erased by inflation heading into the holiday season. Despite this, Long characterized the overall labor market as stable and said she doesn't expect the weak report to deter the Fed from raising rates in December. Where the Job Gains and Losses Occurred Most of September's job growth came from healthcare, which added 17,000 positions, followed by construction with 11,000 new jobs and manufacturing with 9,000. Government employment declined by 17,000, while temporary help services fell by 11,000. Information services lost 10,000 jobs amid growing concerns about artificial intelligence's impact on employment in that sector, and financial activities saw a decline of 7,000 jobs. A Contrast With Broader Economic Strength The disappointing jobs data comes despite signs of resilience elsewhere in the economy. The Commerce Department this week revised first- and second-quarter GDP growth upward to 2.5% and 2.2%, respectively, while the Atlanta Fed's current tracking estimate puts third-quarter GDP growth at 3.7%.