U.S. September job growth falls short of expectations, unemployment ticks up

The Labor Department reported that nonfarm payrolls grew by a seasonally adjusted 29,000 in September, far below the 84,000 jobs economists had projected. The unemployment rate edged higher to 4.2%. Revisions to earlier months reduced August's gain to 133,000 and turned July's reported increase into a loss of 10,000 jobs, cutting the cumulative addition for the second quarter by about 60,000. Traders responded by pushing stock futures higher and sending Treasury yields lower, interpreting the softer data as support for the Federal Reserve keeping rates unchanged at its October meeting. The CME Group's FedWatch tool showed an 82.8% probability of a steady rate decision.

"For the Fed, this number should be the nail in the coffin for an October hike," Thomas Simons, chief U.S. economist at Jefferies, said in a note. "The payroll data surged in August, and we had expected the momentum to continue this month, given the historically low prints on jobless claims in recent weeks," he added. "However, it now appears that the August number was nothing more than a rebound from very weak hiring in June and July." The household survey showed a stronger picture, with employment rising by 406,000, the labor force expanding by 485,000 and the participation rate climbing to 61.8%, its highest since May. An alternative unemployment measure, which includes discouraged workers and part-time workers for economic reasons, fell to 7.6%, the lowest since January 2025. Federal Reserve officials continue to monitor the unemployment rate closely. Recent statements from policymakers suggest that the next rate move may be delayed until December, after the committee raised its benchmark rate by a quarter point in September. Core inflation remains above the Fed's 2% target, running at a 3% annual rate, while wage growth slowed. Average hourly earnings rose 0.1% in September, giving a 12-month gain of 3%, the lowest since May 2021. The average work week held steady at 34.6 hours. "Americans are frustrated by the lack of opportunities right now," said Heather Long, chief economist at Navy Federal Credit Union. "Wage growth fell to a new 5-year low and is being wiped out entirely by inflation. That stings heading into the holidays." Long added that the labor market remains stable and she does not expect the Fed to be deterred from a possible December hike. Job gains were concentrated in health care (+17,000), construction (+11,000) and manufacturing (+9,000). Government employment fell by 17,000, temporary help services declined by 11,000, and information services lost 10,000 jobs, reflecting concerns about the impact of artificial intelligence. Financial activities also shed 7,000 positions. Despite the weak hiring data, other economic indicators point to solid growth. The Commerce Department recently revised first- and second-quarter GDP growth to 2.5% and 2.2%, respectively, while the Atlanta Fed estimates third-quarter GDP at 3.7%.