US jobs growth slows sharply in September as unemployment rises

The United States economy added far fewer jobs than anticipated in September, revealing a notable weakness in the labour market and the broader economic outlook. According to data released by the Bureau of Labour Statistics on Friday, nonfarm payrolls increased by a seasonally adjusted 29,000 for the month. This figure fell significantly short of the 84,000 job growth expected by economists surveyed by Dow Jones. Concurrently, the unemployment rate climbed to 4.2%, exceeding the 4.1% forecast. The report highlighted a surprising soft spot in employment, contrasting with previous expectations of continued momentum following strong data in the preceding month.

The initial figures for September were accompanied by downward revisions to previous months’ data, further underscoring the fragility of recent employment gains. The August jobs count was revised lower to reflect a gain of 133,000, while July figures were adjusted from a gain to a loss, showing payrolls fell by 10,000. In total, these revisions indicated 60,000 fewer jobs than previously reported. Market participants reacted swiftly to the release, interpreting the soft jobs numbers as a signal that the Federal Reserve would likely maintain its current stance at its upcoming October meeting. Stock futures rose sharply following the data release, while Treasury yields slumped after recently reaching levels not seen since the early part of the century. According to the CME Group’s FedWatch tool, market-implied odds that the Fed will hold rates steady at its October 27-28 meeting jumped to 82.8%.

Analysts noted that the August surge in payroll data may have been a temporary rebound from very weak hiring in June and July, rather than a sign of sustained strength. Thomas Simons, chief US economist at Jefferies, suggested that the September number effectively ruled out a rate hike in October. While the establishment survey used to derive the payrolls count showed weakness, the household survey, which is used to calculate the jobless level, presented a more favourable picture. Household employment rose by 406,000 for the month, and the labour force swelled by 485,000. The participation rate, which counts those working or actively searching for a job as a share of the total labour force, increased by 0.2 percentage points to 61.8%, its highest level since May. An alternative measure of unemployment, which includes discouraged workers and those holding part-time jobs for economic reasons, edged down to 7.6%, its lowest since January 2025.

The report arrives as Federal Reserve officials weigh the state of the economy to determine their next interest rate move. Following recent statements from central bank policymakers, markets have recalibrated expectations and now anticipate the rate-setting Federal Open Market Committee will hold off until December for its next hike. The FOMC raised benchmark rates by a quarter percentage point in September. Policymakers largely view inflation as a larger threat to the economy than the labour market, which had shown resilience in recent months. The data has painted a picture of a low-hire, low-fire economy, with weekly jobless claims remaining low and one indicator showing layoffs at their lowest rate in four years. However, inflation has held well above the Fed’s 2% target, with the most recent indicator of the central bank’s preferred gauge showing core inflation at a 3% annual rate.

Wage growth continued to show signs of disinflation, with average hourly earnings increasing by just 0.1% in September. This puts the 12-month gain at 3%, the lowest since May 2021, compared to Wall Street expectations of 0.3% and 3.1% respectively. The average work week remained unchanged at 34.6 hours. Heather Long, chief economist at Navy Federal Credit Union, noted that wage growth has fallen to a new five-year low and is being wiped out entirely by inflation. Despite this, she described the labour market as stable and suggested the Fed would not be dissuaded from hiking in December. Most of the monthly job gains came from healthcare, which added 17,000 workers, while construction was up by 11,000 and manufacturing added 9,000. Conversely, government employment fell by 17,000, temporary help services declined by 11,000, and information services lost 10,000 amid concerns over the impact of artificial intelligence. Financial activities also saw a drop of 7,000 jobs. This weak job growth comes despite signs of strength elsewhere in the economy, with the Commerce Department revising first- and second-quarter gross domestic product growth to 2.5% and 2.2% respectively, and the Atlanta Fed tracking third-quarter GDP at 3.7%.