U.S. Job Growth Slows in September with Unemployment Rate Rising to 4.2%
- U.S. nonfarm payrolls increased by just 29,000 in September, significantly below expectations.
- The unemployment rate rose to 4.2%, up from 4.1% in August.
- Despite weak job growth, the Federal Reserve may not raise rates in October, as market expectations adjust.
The U.S. economy added only 29,000 jobs in September, a stark contrast to economists’ expectations of 84,000 job growth, according to data released by the Bureau of Labor Statistics on Friday. Concurrently, the unemployment rate rose to 4.2%, up from a previous rate of 4.1% in August.
The revisions to previous months’ job reports revealed a gain of 133,000 jobs in August, down from earlier estimates, while July’s figures were adjusted to reflect a loss of 10,000 jobs. Cumulatively, these adjustments indicated 60,000 fewer jobs than initially reported.
Market responses to the weak jobs report were notable, with stock futures experiencing a sharp rise and Treasury yields declining. According to the CME Group’s FedWatch tool, the probability that the Federal Reserve will maintain current interest rates at its upcoming October 27-28 meeting surged to 82.8%.
Thomas Simons, chief U.S. economist at Jefferies, stated, “For the Fed, this number should be the nail in the coffin for an October hike,” indicating that the unexpectedly low job growth numbers might influence the Fed’s decision-making process.
While the establishment survey indicated a slow pace of hiring, the household survey showed more positive results. Household employment rose by 406,000, the labor force expanded by 485,000, and the participation rate increased to 61.8%, its highest since May. An alternative unemployment measure, incorporating discouraged workers and those in part-time employment for economic reasons, reduced to 7.6%, marking its lowest since January 2025.
The report arrives as Federal Reserve officials grapple with the economic landscape and its implications for future interest rate adjustments. Following recent commentary from central bank policymakers, market expectations have adjusted, suggesting that the Federal Open Market Committee may hold off on rate hikes until December. The committee had previously raised benchmark rates by a quarter percentage point in September.
Inflation remains a primary concern for policymakers, exceeding the Fed’s target of 2%. Recent indicators show core inflation at a 3% annual rate. Wage growth also reflects disinflationary trends, with average hourly earnings increasing by only 0.1% in September, leading to a 12-month gain of 3%, the lowest since May 2021. Wall Street had anticipated growth figures of 0.3% and 3.1%.
Heather Long, chief economist at Navy Federal Credit Union, commented on the labor market’s state, highlighting that most job gains originated in health care, which added 17,000 jobs. Construction saw an increase of 11,000 jobs, while manufacturing added 9,000. In contrast, sectors such as government and information services reported declines. Long characterized the labor market as “stable” but expressed concerns over the potential impact of stagnant wage growth on consumer sentiment.
On a broader scale, economic growth indicators remain robust, with the Commerce Department adjusting first- and second-quarter gross domestic product growth rates to 2.5% and 2.2%, respectively. Current tracking from the Atlanta Fed estimates third-quarter GDP growth at 3.7%.
News Courtesy of CNBC
