The U.S. labor market stumbled badly in September, producing far fewer jobs than economists had anticipated and raising fresh questions about the economy’s momentum.
Nonfarm payrolls rose a seasonally adjusted 29,000 for the month, well short of the 84,000 gain that economists surveyed by Dow Jones had forecast heading into the report.
The unemployment rate climbed to 4.2%, up from prior readings, though the Bureau of Labor Statistics noted the increase was largely driven by an influx of new entrants into the labor force.
The participation rate rose 0.2 percentage point to 61.8%, its highest level since May, as household employment jumped by 406,000 and the labor force expanded by 485,000 workers.
Revisions to prior months added to the concern, with August’s payroll count revised lower to 133,000 and July flipping from a gain to a loss, with payrolls falling by 10,000.
Combined, the revisions showed 60,000 fewer jobs than previously reported, deepening the picture of a labor market that has lost considerable steam in recent months.
Markets reacted swiftly and positively to the disappointing figures, with stock futures rising sharply while Treasury yields fell after climbing to levels not seen since the early part of the century.
Market-implied odds that the Federal Reserve will hold rates steady at its Oct. 27-28 meeting jumped to 82.8%, according to the CME Group’s FedWatch tool, as traders viewed the weak data as removing pressure on policymakers to act.
“For the Fed, this number should be the nail in the coffin for an October hike,” said Thomas Simons, chief U.S. economist at Jefferies, in a note following the release.
“The payroll data surged in August, and we had expected the momentum to continue this month, given the historically low prints on jobless claims in recent weeks,” Simons added, noting that August now appears to have been a rebound from weak hiring in June and July.
Wage growth also softened considerably, with average hourly earnings rising just 0.1% in September, pushing the 12-month gain down to 3%, the lowest annual rate since May 2021.
Wall Street had expected monthly wage growth of 0.3% and an annual rate of 3.1%, meaning the actual figures fell short on both counts, adding to signs of broader disinflation in the labor market.
“Americans are frustrated by the lack of opportunities right now,” said Heather Long, chief economist at Navy Federal Credit Union, pointing to the toll of slowing wage growth.
“Wage growth fell to a new 5-year low and is being wiped out entirely by inflation,” Long said, adding that “that stings heading into the holidays.”
Despite her cautious tone on workers, Long described the labor market as “stable” and said she does not believe the Fed will be dissuaded from hiking rates in December.
An alternative measure of unemployment, which captures discouraged workers and those holding part-time positions for economic reasons, edged down to 7.6%, its lowest level since January 2025.
Most of September’s job gains were concentrated in healthcare, which added 17,000 workers, while construction grew by 11,000 and manufacturing added 9,000 positions during the month.
Government employment fell by 17,000, temporary help services declined by 11,000, and information services lost 10,000 jobs amid growing concerns about artificial intelligence’s impact on hiring.
Inflation remains a central concern for Fed policymakers, with the central bank’s preferred gauge showing core inflation running at a 3% annual rate, well above the Fed’s 2% target.
Despite the labor market softness, broader economic growth has remained strong, with the Commerce Department revising first- and second-quarter GDP to 2.5% and 2.2% respectively, while the Atlanta Fed is tracking third-quarter GDP growth at 3.7%.
