The US economy experienced a significant slowdown in job growth in September, with the addition of only 29,000 jobs, according to the Bureau of Labor Statistics. This figure was much lower than the 84,000 jobs expected by economists surveyed by Dow Jones. The unemployment rate also rose to 4.2%, up from previous expectations of 4.1%. The weak job growth in September was accompanied by downward revisions to the job growth numbers for August and July.
The weak job growth in September was met with a swift reaction in the markets, with traders interpreting the data as a positive sign that the Federal Reserve is likely to keep interest rates unchanged at its October meeting. The futures contracts for stocks rose sharply after the report, while Treasury yields fell back after recent gains. According to the CME's FedWatch tool, the market's expectation of the Fed keeping interest rates steady in October rose to 82.8% after the report.
Economists had expected a continuation of the strong job growth seen in August, but the September data showed a significant slowdown. Thomas Simons, chief US economist at Jefferies, noted that the weak job growth in September was a surprise, given the low levels of initial unemployment claims in recent weeks. He suggested that the August job growth figure may have been an anomaly, and that the labor market may be weakening.
The Fed is closely watching the labor market, but also pays close attention to the unemployment rate. The household survey, which is used to calculate the unemployment rate, showed a stronger performance than the establishment survey, which is used to determine the number of jobs in payrolls. The household survey showed an increase of 406,000 in employment, while the labor force increased by 485,000.
The participation rate, which measures the percentage of the labor force that is employed or actively seeking work, rose to 61.8%, the highest level since May. The alternative measure of unemployment, which includes discouraged workers and those working part-time for economic reasons, fell to 7.6%, the lowest level since January 2025.
The report comes at a time when Fed officials are evaluating the state of the economy and its potential impact on their next decision on interest rates. After recent comments from policymakers, markets have pushed back their expectations for the next rate hike to December. The Fed raised interest rates by a quarter point in September, and officials have expressed concern about inflation, which remains above the Fed's 2% target.
Despite the weak job growth in September, the labor market still appears to be in good shape, with low levels of unemployment claims and a decline in layoffs. However, inflation remains a concern, with the Fed's preferred measure of inflation running at an annual rate of 3%. The slowdown in wage growth, with hourly earnings rising by only 0.1% in September, may be a sign that inflation is starting to moderate.
Key points
- The US job market showed unexpected weakness in September, with only 29,000 jobs added, far below expectations.
- The weak job growth in September may have reduced the likelihood of a rate hike by the Federal Reserve in October.
- The labor market still appears to be in good shape, but inflation remains a concern for policymakers.
