US job growth slowed sharply in September, with nonfarm payrolls rising by just 29,000, well below economists' expectations, while the unemployment rate edged higher to 4.2%.
Reuters citing data released by the US Labor Department reported that payrolls increased by 29,000 last month, compared with a downwardly revised gain of 133,000 in August. Economists polled by Reuters had expected the US economy to add 90,000 jobs in September. The August payroll increase was earlier reported at 162,000.
The September reading marked a significant slowdown in hiring, although economists cautioned against interpreting the data as evidence of a broad deterioration in the labour market. Reuters reported that calendar-related distortions and seasonal adjustment factors may have contributed to the unusually weak figures.
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The timing of Labor Day was a particular factor. The holiday fell relatively late this year, which economists said has historically been associated with weaker payroll readings. Seasonal adjustment models used by the government to account for such fluctuations may therefore have affected both the September figure and the revision to August.
The unemployment rate rose to 4.2% in September from 4.1% in August. Despite the increase, the rate remains relatively low. There were also few indications of a widespread rise in layoffs. First-time applications for unemployment benefits have remained near multi-decade lows, while corporate profits and domestic demand have continued to show resilience, Reuters reported.
However, economists are increasingly watching the potential impact of higher energy costs, supply-chain disruptions and trade tensions on employment in the months ahead.
The ongoing US-Israel war with Iran has added pressure to energy markets, with higher fuel costs posing a potential challenge for businesses, particularly in transportation and agriculture. Economists expect these pressures, along with supply constraints, to become more visible in the labour market towards the end of this year and into 2027.
Tariff-related uncertainty is another concern for employers. An Institute for Supply Management survey released earlier this week showed increased anxiety among manufacturers over trade tensions with Canada.
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The latest jobs data also strengthened expectations that the Federal Reserve may face less pressure to tighten monetary policy further. The Fed last month raised its benchmark interest rate by 25 basis points to a 3.75%-4.00% range.
Before the employment report, markets were pricing in roughly a 22% probability of another rate hike at the Fed's October 27-28 meeting, down from about 69% a week earlier, according to CME Group's FedWatch tool.
The weak payroll figure triggered a sharp reaction across financial markets. US Treasury yields for maturities between two and seven years fell by at least 10 basis points, while the Bloomberg Dollar Spot Index extended its decline. Emerging-market currencies strengthened and stocks recovered losses following the jobs data.
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