Employers hired at a slower pace than expected in September while the unemployment rate ticked up – though it’s likely still enough to keep the Fed on track for a second interest-rate hike in December.
US employers added 29,000 jobs in September, sorely missing estimates of an 84,000 gain and far below a downwardly revised gain of 133,000 the previous month, initially reported as 162,000, the Bureau of Labor Statistics said Friday.
The unemployment rate ticked up to 4.2% from 4.1% the previous month. Economists have partially attributed the relatively steady unemployment figures to Baby Boomers starting to retire and President Trump’s strict deportation agenda, both of which have kept labor market entry low.
Job gains for July and August were revised down by a combined 60,000 jobs, meaning the economy added an average of 45,000 jobs over the past 12 months – a steady pace, but more anemic than previously thought.
Investors were largely expecting the Fed to hold interest rates steady at its meeting this month over fears that a second rate hike just before the November midterm elections could appear politicized. The disappointing jobs data only gives officials more breathing room to hold off rate hikes.
Most are still projecting a second quarter-point hike this year at the Fed’s December meeting.
“While the weak payrolls number perhaps creates less urgency for the Fed, inflation remains the primary concern,” Larry Holzenthaler, senior portfolio manager at Catalyst Funds, wrote in a note Friday.
“This has the potential to slow down the pace of Fed rates hikes, but higher rates remains the broad theme.”
Stocks rose after the weak jobs data sent Treasury yields – hovering at two-decade highs – on a decline, with the US 10-year Treasury yield hitting 5.203%.
The Dow Jones Industrial Average jumped 362 points, or 0.7%, by approximately 9:40 a.m. ET, while the S&P 500 and Nasdaq rose 0.9% and 1.3%, respectively.
“We think today’s data should put to bed any remaining talk of an October rate rise from the Fed,” Matthew Ryan, head of market strategy at Ebury, wrote in a note Friday.
“December remains our base case for the next move, though the recent spike in yields, and any progress in the Iran war negotiations between now and then, could yet throw further tightening into doubt.”
Central bankers have primarily been concerned with volatility in other sectors of the economy, particularly as oil price shocks amid the Iran war keep inflation stubbornly high.
But there are underlying signs of strain in the labor market, like inflation far outpacing wage growth, which helps explain why Americans are reporting such low consumer sentiment.
Average hourly earnings ticked up by just 5 cents in September, at a 3% annual pace – below recent inflation estimates of 3.4%.
Recent college graduates have reported difficulty finding full-time jobs as companies halt their hiring plans amid economic uncertainty. In September, 4.5 million people were employed part-time for economic reasons, a sign that workers are taking on retail jobs and other hourly work as they struggle to enter professional services.
Nearly 2 million people were counted as “long-term unemployed,” meaning they were jobless for 27 weeks or more despite actively looking for work.
Health care employment – which was responsible for nearly all job growth in 2025 – continued to supply most of the gains, adding 17,000 jobs in September. But the sector grew at a slower pace than its average monthly gain of 33,000 over the past 12 months.
Construction added 11,000 jobs. Manufacturing added 9,000 jobs and the sector is up by 72,000 since a recent low in December 2025.
Though it can be difficult to track the exact impact of artificial intelligence, there were signs the new tech is already hitting jobs.
Information services lost 10,000 jobs, the financial industry shed 7,000 roles and professional and business services fell by 9,000.
In September, AI was responsible for nearly 4,000 job cuts, Challenger, Gray & Christmas said Thursday. The outplacement firm tracks monthly public job cut announcements.
So far this year, AI has been cited in more than 120,000 job cut announcements, making it the leading reason and responsible for 21% of all layoffs in 2026.
