US Job Growth Slows in September, Unemployment Rate Rises to 4.2
The US labor market showed signs of slowing in September, with job growth falling short of expectations. The Labor Department's report revealed that nonfarm payrolls for the prior two months were revised downward, reducing the likelihood of an interest rate hike by the Federal Reserve in October. The unemployment rate ticked up to 4.2% from 4.1%, as more people entered the workforce. Economists noted that the moderation in job growth was partly due to the timing of the Labor Day holiday this year.
Despite the slower job growth, there were no signs of widespread layoffs, with first-time unemployment claims remaining at 57-year lows. The report reaffirmed the labor market's 'low-hire, low-fire' state, with economists suggesting it had little impact on near-term monetary policy. Olu Sonola, head of US economics at Fitch Ratings, described the report as disappointing, highlighting weak job growth and contained wage gains that give the Fed little reason to consider a rate hike in October.
Job growth averaged 51,000 per month over the past three months, slightly above the estimated break-even rate of 50,000 needed to keep up with the growth in the working-age population. However, economists warned of growing headwinds from the US-Israeli war with Iran, including high energy prices and strained supply chains, which could disrupt the labor market by the end of the year and into 2027. Diesel prices at record highs and ongoing tariffs were cited as sources of concern, with manufacturers expressing anxiety over the trade war with Canada.
Financial markets initially lowered bets on a rate hike at the Fed's October meeting but later adjusted them back to about 23%. The Fed had raised its benchmark interest rate to the 3.75%-4.00% range in September, with economists still expecting a rate hike in December. The report also showed a cooling in wage growth, with average hourly earnings edging up just 0.1% in September, down from 0.3% in August. This raised concerns over the sustainability of consumer spending and economic growth.