U.S. employers added just 29,000 jobs in September as unemployment edged higher and previous payroll estimates were revised down, although historically low layoffs and a growing labor force suggest the weak headline number may overstate the deterioration in the job market.
By yourNEWS Media Newsroom
U.S. hiring slowed sharply in September as employers added only 29,000 jobs and the unemployment rate rose to 4.2%, delivering a substantially weaker payroll figure than economists expected while raising new questions about the strength of the labor market and the Federal Reserve’s next interest-rate decision.
The Labor Department’s September employment report showed nonfarm payroll growth falling from a downwardly revised 133,000 jobs in August. The government had initially estimated an August increase of 162,000.
July was also revised substantially lower, from a previously reported gain of 21,000 jobs to a loss of 10,000. Taken together, the July and August revisions showed 60,000 fewer jobs were created than previously estimated.
The September increase also fell well short of expectations. Economists surveyed by Reuters had projected approximately 90,000 new jobs, with individual estimates ranging from 35,000 to 180,000.
Despite the weak headline figure, economists cautioned against interpreting one month’s report as evidence of a sudden collapse in employment. Reuters reported that seasonal adjustment issues surrounding the timing of Labor Day may have contributed to both September’s unusually weak number and revisions to previous months.
Payroll growth has historically tended to underperform when Labor Day falls relatively late, as it did this year. The government’s monthly figures are seasonally adjusted to remove recurring patterns in hiring, school schedules, holidays and other predictable fluctuations, but unusual calendar configurations can still create volatility.
Other labor-market indicators have yet to show the broad increase in layoffs that would ordinarily accompany a major employment downturn.
Initial applications for unemployment benefits have recently hovered near 57-year lows, while corporate profits and domestic demand have remained comparatively strong. Employers appear reluctant to add workers aggressively, but they also have not been shedding employees on a large scale.
The combination has left the United States in what economists increasingly describe as a low-hiring, low-firing labor market: businesses are creating fewer new positions while existing workers generally remain employed.
The unemployment rate nevertheless increased from 4.1% in August to 4.2% in September.
That increase partly reflected more Americans entering the workforce. The household survey used to calculate unemployment showed employment rising by approximately 406,000 people during September, but the labor force increased by about 485,000 as additional people began working or looking for work.
The labor-force participation rate consequently increased to 61.8% from 61.6%.
Because people are counted as unemployed only if they are actively looking for work, an increase in labor-force participation can temporarily push the unemployment rate higher even when total employment is rising.
A broader unemployment measure that includes people who want jobs but have stopped searching, as well as workers employed part time because they cannot obtain full-time positions, moved in the opposite direction. That measure declined to 7.6% from 7.7% in August.
Other indicators were less favorable. The number of people working part time for economic reasons increased, while long-term unemployment rose. The median duration of unemployment edged up to 11.5 weeks, near its highest level in roughly four and a half years.
September’s payroll gains were also narrowly distributed across industries.
Health care remained one of the principal sources of employment growth, adding approximately 17,000 jobs. That was considerably below the sector’s average monthly increase of about 33,000 during the previous 12 months. Ambulatory health services and hospitals added workers, while nursing and residential care facilities lost about 9,000 jobs.
Construction employment increased by approximately 11,000, with much of the gain concentrated among nonresidential specialty trade contractors.
Manufacturing added approximately 9,000 jobs during the month. Factory employment has now risen by roughly 72,000 from its low point last December, with investment in artificial intelligence infrastructure and data-center construction potentially contributing to demand in some manufacturing segments.
Leisure and hospitality employment rose by approximately 10,000, while wholesale trade, retail trade and transportation and warehousing registered smaller increases.
Several major sectors contracted.
Information employment declined by approximately 10,000 jobs, financial activities lost about 7,000 positions and professional and business services fell by approximately 9,000. Temporary-help services, often watched as an early indicator of employers’ hiring plans, declined by nearly 11,000.
Government payrolls dropped approximately 17,000, largely because of employment losses in local government outside education.
Only 49% of private industries reported employment increases in September, down from 57.6% in August and the weakest breadth of hiring in 11 months.
Average weekly hours remained unchanged at 34.4, providing another indication that companies have not yet broadly reduced employees’ schedules.
Wage growth also cooled. Average hourly earnings increased just 0.1% during September to $37.81 and were 3% higher than a year earlier. Annual wage growth had been 3.1% in August.
The moderation could reduce concerns at the Federal Reserve that wages are contributing significantly to inflation. At the same time, slower earnings growth could place pressure on household purchasing power, particularly while consumer prices remain elevated.
The labor market has also been adjusting to slower growth in the available workforce.
Retirements and the Trump administration’s immigration enforcement policies have reduced labor-supply growth, lowering the number of new jobs economists believe the economy must create each month to keep unemployment stable.
Some economists have estimated the current break-even pace at roughly 50,000 to 80,000 jobs per month, substantially below estimates common during periods of faster population and labor-force growth. Reuters cited economists placing the current level around 50,000.
Measured over three months, payroll growth averaged approximately 51,000 jobs per month, meaning the broader trend remains stronger than September’s 29,000 figure but substantially below the hiring rates recorded during much of the post-pandemic expansion.
Potential economic pressures are also accumulating.
Economists expect the U.S.-Israeli war with Iran and the resulting disruption to international energy markets and supply chains to increasingly affect employers late this year and into 2027.
Record diesel prices are one concern because diesel is extensively used in trucking, agriculture, construction and other industries. Sustained increases can raise transportation and production expenses throughout the economy, eventually affecting hiring decisions outside the sectors directly purchasing the fuel.
Trade policy presents another uncertainty. Manufacturers surveyed by the Institute for Supply Management have expressed growing concern about tariffs and the U.S. trade dispute with Canada, adding another source of cost pressure for businesses already dealing with higher energy expenses.
The combination of slowing hiring and persistent inflation leaves the Federal Reserve confronting competing risks.
The central bank raised its benchmark federal funds rate by a quarter percentage point in September to a target range of 3.75% to 4%, its first rate increase in three years. Federal Reserve policymakers said inflation remained elevated and indicated that additional tightening could be appropriate if price pressures persisted.
Expectations for another increase at the Fed’s Oct. 27-28 meeting, however, have fallen sharply.
Before the employment report, financial markets had already scaled back expectations because inflation readings for July and August were cooler than anticipated. Following Friday’s jobs data, futures markets placed the likelihood of an October increase at roughly 20%, compared with nearly 70% earlier in the week.
The latest assessment of Federal Reserve expectations shows investors increasingly expect policymakers to wait for additional inflation and economic data before tightening again.
Inflation remains above the Fed’s 2% target, meaning the September employment report does not eliminate the possibility of additional rate increases later this year. Futures markets continue to assign a considerably higher probability to another move by December than to an October increase.
Friday’s data therefore complicate rather than settle the economic outlook.
The 29,000 payroll increase was dramatically weaker than expected, August job creation was revised down by 29,000 and July is now estimated to have recorded an outright employment decline. Wage growth has slowed and unemployment has increased.
At the same time, the household survey showed more than 400,000 additional people employed, labor-force participation increased, unemployment claims remain exceptionally low and there is little evidence so far of widespread layoffs.
The September figures may therefore reflect both genuine slowing in hiring and temporary distortions from seasonal adjustment and the calendar.
The next several months could prove more consequential as employers confront high energy costs, supply-chain strains, tariffs and higher borrowing costs.
For now, the employment report depicts a labor market that has lost considerable hiring momentum without yet showing the mass job losses normally associated with a downturn — a distinction that will be closely watched by businesses, financial markets and Federal Reserve policymakers heading into the final months of 2026.
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