The U.S. labor market weakened noticeably in September, with employers adding just 29,000 jobs as the unemployment rate rose to 4.2%, according to the Bureau of Labor Statistics.
The payroll increase was well below economists’ forecast of 84,000 jobs. August employment was also revised down to 133,000, while July was revised from a gain to a loss of 10,000 jobs. The revisions reduced previously reported employment gains by a combined 60,000.
Labor Force Participation Increases
All told, it remains a “low-hire, low-fire” labor market that’s undergoing a structural shift as a result of an aging population, increased Baby Boomer retirements, a decline in immigration and the advancement of artificial intelligence.
“We are just seeing the labor market holding up,” said Kory Kantenga, chief economist at LinkedIn. “It’s a slow labor market, hiring’s still slow, we still see elevated competitiveness, job seekers still have low confidence; but we don’t see any red flags that the labor market is getting worse.”
Financial markets responded positively to the weak hiring figures, as investors viewed the slowdown as reducing pressure on the Federal Reserve to raise interest rates at its Oct. 27-28 meeting. Market-implied odds of the Fed holding rates steady 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 in September. Average hourly earnings rose 0.1%, bringing the annual increase to 3%, the slowest pace since May 2021. Economists had expected monthly growth of 0.3% and annual growth of 3.1%.
The average workweek was unchanged at 34.6 hours.
Heather Long, chief economist at Navy Federal Credit Union, said Americans are facing fewer opportunities as wage growth slows while inflation remains elevated.
Despite the weak employment figures, the broader economy has continued to expand. The Commerce Department recently revised first- and second-quarter GDP growth to 2.5% and 2.2%, respectively, while the Atlanta Fed was tracking third-quarter growth at 3.7%.
Healthcare Leads Job Gains
Healthcare posted the largest employment increase in September, adding 17,000 jobs. Construction employment rose by 11,000, while manufacturing added 9,000 workers.
Several sectors recorded declines. Government employment fell by 17,000, temporary help services dropped by 11,000 and information services lost 10,000 jobs. Financial activities employment also declined by 7,000.
The report comes 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.
