The U.S. economy created far fewer jobs than expected in September, indicating a surprisingly weak labor market and overall economy.
Nonfarm payrolls rose by a seasonally adjusted 29,000 people in the month, pushing the unemployment rate to 4.2%, the Bureau of Labor Statistics said Friday. Economists surveyed by Dow Jones had predicted job growth of 84,000 jobs and an unemployment rate of 4.1%.
In addition to the slump in September, the number of employees in August was revised downward to reflect an increase of 133,000 people, while in July the number of employees decreased by 10,000, resulting in a shift from increase to decrease. The latest revision shows that the number of employees has decreased by 60,000 from the previous report.
Market reaction to the report was swift, with traders interpreting the soft employment report as a positive sign that the US Federal Reserve was likely to stay on hold at its October meeting.
Stock futures soared on the announcement, while U.S. Treasury yields fell after recently rising to levels not seen since the beginning of this century. The market’s odds that the Fed will keep interest rates unchanged at its Oct. 27-28 meeting have jumped to 82.8%, according to CME Group’s FedWatch tool.
“For the Fed, this number should be the nail in the coffin for an October rate hike,” Thomas Simmons, chief U.S. economist at Jefferies, said in a note.
“The August employment report was strong, and given the historically low unemployment claims in recent weeks, we expected that momentum to continue this month,” he added. “However, it now appears that August’s numbers were simply a reaction to the very weak employment in June and July.”
Fed officials are watching the unemployment rate more closely than major payroll numbers.
The household survey, which is used to calculate the unemployment rate, fared much better than the establishment survey, which is used to calculate the number of people on payroll.
Household employment increased by 406,000 people in the same month, the labor force increased by 485,000 people, and the participation rate of people working or actively looking for work rose 0.2 points to 61.8%, the highest since May.
A proxy measure of the unemployment rate, which includes discouraged workers and those in part-time jobs for financial reasons, fell to 7.6%, the lowest level since January 2025.
The report comes as Federal Reserve officials consider the state of the economy and how it will affect the next move in interest rates.
Markets have readjusted their expectations following statements from central bank policymakers in recent days, and now expect the rate-setting Federal Open Market Committee to postpone its next rate hike until December. The FOMC raised its benchmark interest rate by a quarter of a point in September.
Policymakers primarily see inflation as a bigger threat to the economy than the labor market, which has shown resilience in recent months. The data highlights an economy with fewer jobs and fewer layoffs, with indicators showing low weekly unemployment claims and the lowest layoff rate in four years.
But inflation remains well above the Fed’s 2% target. The latest measure of the central bank’s recommended indicators showed core inflation at an annual rate of 3%.
However, wages continued to show signs of disinflation.
Average hourly wages increased only 0.1% in September, bringing the 12-month growth rate to 3%, the lowest level since May 2021. Wall Street had expected numbers of 0.3% and 3.1%, respectively. The average working week remained unchanged at 34.6 hours.
“Americans are frustrated by the lack of opportunity right now,” said Heather Long, chief economist at Navy Federal Credit Union. “Wage growth has fallen to its lowest level in five years and is being wiped out by inflation. That’s the pain heading into the holidays.”
But Long said the labor market is “stable” and doesn’t think the Fed will be deterred from raising rates in December.
Most of the monthly job gains came from healthcare, which added 17,000 employees. The construction industry saw an increase of 11,000 people, and the manufacturing industry saw an increase of 9,000 people.
Due to concerns about the impact of artificial intelligence on the employment situation, government employment decreased by 17,000, temporary support services decreased by 11,000, and information services decreased by 10,000. Financial activities also lost 7,000 jobs.
Employment growth is weak despite signs of strength elsewhere.
At the macro level, economic growth is strong.
Earlier this week, the Commerce Department revised its gross domestic product (GDP) growth rates for the first and second quarters to 2.5% and 2.2%, respectively. The Atlanta Fed estimates third-quarter GDP growth at 3.7%.
