US job growth stalls in September but labor market holds steady
US job growth in September fell short of expectations, with nonfarm payrolls increasing by just 29,000 jobs. This figure was significantly lower than the anticipated 90,000 jobs and marked a sharp decline from the revised 133,000 jobs added in August. The Labor Department also revised downward the payroll counts for July and August, revealing the economy added 60,000 fewer jobs than previously estimated. Despite these numbers, economists noted that the labor market remains stable, with no broad increase in layoffs and first-time unemployment claims near 57-year lows.
The unemployment rate rose slightly to 4.2% from 4.1% as more people entered the workforce. While job growth has slowed, it still averages 51,000 per month over the past three months, up from 23,000 during the same period in 2025. Economists suggest the economy needs roughly 50,000 new jobs per month to keep pace with the growth in the working-age population. The report also highlighted sector-specific trends, such as job gains in healthcare, construction, and manufacturing, offset by declines in information, financial activities, and government payrolls.
Financial markets initially lowered the odds of a Federal Reserve rate hike in October to 13%, but later raised them back to 23%. The Fed had previously raised its benchmark interest rate to the 3.75%-4.00% range in September, with inflation still above its 2% target. Wage growth slowed, with average hourly earnings rising just 0.1% in September, down from 0.3% in August. This trend raised concerns about the sustainability of consumer spending and economic growth, as wage gains lag behind inflation.
Economists emphasized that the labor market remains in a 'low-hire, low-fire' state, with no immediate impact on near-term monetary policy. However, they warned that growing headwinds from the US-Israeli war with Iran, including high energy prices and strained supply chains, could start disrupting the labor market by the end of the year and into 2027. Diesel prices at record highs and ongoing tariffs are additional sources of concern, particularly for manufacturers.