The U.S. labor market delivered a sharp disappointment in September, with job creation falling far short of forecasts and unemployment ticking higher.
Nonfarm payrolls rose by just 29,000 on a seasonally adjusted basis, according to the Bureau of Labor Statistics, well below the 84,000 gain economists surveyed by Dow Jones had expected.
The unemployment rate climbed to 4.2%, exceeding the 4.1% forecast, though the rise was largely attributed to an influx of new entrants into the labor force rather than widespread job losses.
Revisions to prior months compounded the concern, with August’s payroll count revised down to 133,000 and July flipping from a gain to a loss, showing a decline of 10,000 jobs.
Combined, the revisions reflected 60,000 fewer jobs than previously reported, adding further weight to concerns about underlying momentum in the labor market.
Markets responded positively to the weak data, with stock futures rising sharply and Treasury yields falling as traders interpreted the soft numbers as reducing pressure on the Federal Reserve to act.
Market-implied odds that the Fed will hold rates steady at its October 27-28 meeting jumped to 82.8%, according to the CME Group’s FedWatch tool, following the release of the report.
“For the Fed, this number should be the nail in the coffin for an October hike,” said Thomas Simons, chief U.S. economist at Jefferies, in a note to clients.
Simons added: “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. However, it now appears that the August number was nothing more than a rebound from very weak hiring in June and July.”
Despite the gloomy headline, the household survey painted a more resilient picture, with employment rising by 406,000 and the labor force expanding by 485,000 for the month.
The labor force participation rate rose 0.2 percentage point to 61.8%, its highest level since May, while an alternative unemployment measure that includes discouraged workers edged down to 7.6%, its lowest since January 2025.
Wage growth also softened, with average hourly earnings rising just 0.1% in September, bringing the annual gain to 3%, the lowest since May 2021 and below Wall Street expectations of 0.3% monthly and 3.1% annually.
“Americans are frustrated by the lack of opportunities right now,” said Heather Long, chief economist at Navy Federal Credit Union, adding that “wage growth fell to a new 5-year low and is being wiped out entirely by inflation. That stings heading into the holidays.”
Long nevertheless described the labor market as “stable” and said she does not believe the Fed will be dissuaded from hiking rates in December.
Most of September’s job gains were concentrated in healthcare, which added 17,000 workers, while construction contributed 11,000 and manufacturing added 9,000 jobs.
On the other side of the ledger, government employment fell by 17,000, temporary help services declined by 11,000, and information services lost 10,000 jobs amid concerns over artificial intelligence’s impact on employment.
Despite the labor market softness, broader economic growth has remained strong, with the Commerce Department revising first- and second-quarter GDP growth to 2.5% and 2.2% respectively, while the Atlanta Fed is tracking third-quarter GDP at 3.7%.