The U.S. labor market showed signs of slowing in September, but analysts say the employment picture remains relatively stable as the Federal Reserve weighs its next move on interest rates.
The US economy added 29,000 jobs last month, according to data released Friday by the Bureau of Labor Statistics. That is fewer than the 95,000 economists expected and far fewer than the revised 133,000 jobs added in August. The unemployment rate rose slightly from 4.1% to 4.2%.
Traders pared back their expectations for an October interest rate hike after the report. The bond futures market puts the chances of a Fed rate increase this month at less than 20%. A week ago, that prediction stood at over 60%.
“The labor market remains healthy underneath the surface,” Doyle said.
Morningstar senior U.S. economist Preston Caldwell said the September figures helped ease concerns about another significant deterioration in employment following the sharp cooling seen in 2024 and 2025. He expects the Fed to consider other economic indicators as it determines its next rate moves.
September Jobs Report Key Stats
- Nonfarm payrolls increased by 29,000 after a revised gain of 133,000 in August.
- The unemployment rate rose to 4.2% from 4.1%.
- Average hourly earnings increased by 5 cents, or 0.1%, to $37.81.
Healthcare, construction and manufacturing accounted for much of the job growth during the month, while government and financial services employment declined.
Despite the increase in unemployment, analysts noted that the rate has remained within a relatively narrow range in recent months.
“I don’t suspect that this is the start of a sustained rise in unemployment,” Doyle said, noting that a broader measure of unemployment declined slightly in September.
October Rate Hike Expectations Decline
The slowdown in hiring could give the Federal Reserve more room to keep interest rates unchanged at its October meeting, particularly if inflation continues to moderate.
“Today’s soft payroll report demonstrates that the labor market is simmering, not boiling,” Jeff Schulze, head investment strategist at the Franklin Templeton Institute, wrote Friday.
Caldwell said softer inflation data could also support a pause in October, although he still expects one rate increase before the end of the year.
Doyle likewise expects the Fed to wait until December before raising rates again, citing signs that underlying inflation is moving in the right direction.
CME FedWatch data showed traders pricing in an 18% chance of an October rate hike, down from 24% on Thursday and 64% the previous week.
