US employers add just 29,000 jobs in September as unemployment rises to 4.2%

US employers added 29,000 jobs in September, the Bureau of Labor Statistics reported Friday, and the unemployment rate rose to 4.2%.

The report landed far below economist forecasts and marked a sharp slowdown from August’s revised gain of 133,000. It was the final pre-election report. The numbers dimmed the case for another Federal Reserve rate hike and arrived with midterm congressional elections one month away. The weak report reduced expectations for further tightening, though analysts split on whether the central bank would pause at its next meeting.

Revisions deepen the slowdown

Economists surveyed by Dow Jones had forecast job growth of 84,000 and an unemployment rate of 4.1%. The miss was compounded by downward revisions to prior months. July payrolls were revised from a gain to a loss of 10,000. Total revisions showed 60,000 fewer jobs than previously reported across July and August combined. Thomas Simons, chief U.S. economist at Jefferies, said the August surge was “nothing more than a rebound from very weak hiring in June and July.”

Government losses drag down payrolls

Government employment fell by 17,000 and weighed on overall growth. Healthcare added 17,000 workers, construction rose by 11,000, and manufacturing added 9,000. Financial activities dropped 7,000, temporary help services declined 11,000, and information services lost 10,000. Bradley Saunders, North America economist at Capital Economics, linked the softer healthcare and social assistance rise to the Trump administration’s decision to rescind Temporary Protected Status and work authorization for 350,000 migrants. He described the payroll figure as “not disastrous.”

Wage growth cools to multi-year low

Average hourly earnings rose 0.1% in September, putting the 12-month wage gain at 3%, the lowest since May 2021. Wall Street had forecast 0.3% monthly and 3.1% annual. “Americans are frustrated by the lack of opportunities right now,” said Heather Long, chief economist at Navy Federal Credit Union. “Wage growth fell to a new 5-year low and is being wiped out entirely by inflation. That stings heading into the holidays.” The household survey painted a brighter picture. Household employment rose by 406,000, the labor force swelled by 485,000, and the participation rate increased 0.2 percentage point to 61.8%, its highest since May. The U-6 unemployment measure edged down to 7.6%, its lowest since January 2025. The average work week was unchanged at 34.6 hours.

Markets rally as rate-hike odds fade

Market-implied odds that the Fed will hold rates steady at its Oct. 27-28 meeting jumped to 82.8%, according to CME Group’s FedWatch tool. The FOMC raised benchmark rates a quarter percentage point in September. “For the Fed, this number should be the nail in the coffin for an October hike,” Simons said. Seema Shah, chief global strategist at Principal Asset Management, said an October hike was “firmly on the back foot” and that “today’s data argues for patience, not panic.” Not everyone agreed. Nancy Vanden Houten, lead U.S. economist at Oxford Economics, called an October hike a closer call and said she expected the Fed to raise rates at the end of the month. Heather Long, chief economist at Navy Federal Credit Union, said she did not think the Fed would be dissuaded from hiking in December. Markets now expect the rate-setting Federal Open Market Committee to hold off until December for its next hike. Stocks rallied on the report. The Nasdaq Composite jumped 1.6%, the S&P 500 rose 1%, and the Dow Jones industrial average rose 0.85%. The 10-year Treasury yield fell 6 basis points to 5.174%, pulling away from a 24-year high. The 30-year Treasury yield fell 4.5 basis points to 5.568%.

Political headwinds ahead of midterms

An AP/NORC poll released Thursday found just 17% of Americans approve of President Trump’s handling of cost-of-living issues, while 26% approve of his handling of the economy overall. Both figures are new lows for Trump, surpassing the lowest mark for Joe Biden during his presidential term. The report stands in sharp contrast to Trump’s insistence that America’s economy is booming. At a White House event earlier this week, Trump said he had done “a very bad job of explaining how good the country is doing.”