The U.S. labor market weakened noticeably in September, with employers adding just 29,000 jobs as the unemployment rate climbed to 4.2%, according to data from the Bureau of Labor Statistics.
The payroll increase fell well short of economists’ expectations for 84,000 new jobs. The August figure was also revised down to 133,000, while July was revised from a gain to a loss of 10,000 jobs. Combined revisions reduced previously reported employment gains by 60,000.
Labor Force Participation Increases
The rise in unemployment was partly linked to more people entering the labor market. Employment measured through the household survey increased by 406,000, while the labor force expanded by 485,000.
The labor-force participation rate rose 0.2 percentage point to 61.8%, its highest level since May. A broader measure of unemployment that includes discouraged workers and people working part time for economic reasons fell to 7.6%, its lowest since January 2025.
Financial markets reacted positively to the weak hiring figures, with investors viewing the slowdown as reducing pressure on the Federal Reserve to raise interest rates at its Oct. 27-28 meeting. Market-implied odds of rates remaining unchanged at that meeting rose to 82.8%, according to CME Group’s FedWatch tool.
“The payroll data surged in August, and we had expected the momentum to continue this month,” Jefferies chief U.S. economist Thomas Simons said. He added that the August increase now appeared to have been largely a rebound from particularly weak hiring in June and July.
Wage Growth Slows
Pay growth also moderated. Average hourly earnings increased 0.1% in September, leaving the annual increase at 3%, the slowest pace since May 2021. Economists had expected monthly growth of 0.3% and annual growth of 3.1%.
In addition to the weakness in September, the August jobs count was revised lower to reflect a gain of 133,000 while July switched from a gain to a loss as payrolls fell by 10,000. The revisions in total showed 60,000 fewer jobs than previously reported.
Market reaction was swift to the report, with traders interpreting the soft jobs numbers as good news as they likely further cemented the Federal Reserve staying put at its October meeting.
Healthcare Leads Job Gains
Healthcare accounted for the largest increase in employment, adding 17,000 jobs. Construction employment rose by 11,000, while manufacturers added 9,000 workers.
Other sectors contracted. Government employment fell by 17,000, temporary help services declined by 11,000 and information services lost 10,000 jobs. Financial activities employment also decreased by 7,000.
The figures arrive as Federal Reserve officials weigh persistent inflation against signs of cooling in the labor market. Core inflation, measured by the Fed’s preferred gauge, remained at 3% annually in August, above the central bank’s 2% target.
