September Employment Report

A Slowing, but Stable Labor Market

The September employment report showed slower-than-expected job growth, with nonfarm payrolls increasing by just 29,000 versus expectations of 90,000. In addition, the prior two months were revised down by a combined 60,000 jobs, including a notable revision to July, which was revised from a gain of 21,000 to a decline of 10,000.

The unemployment rate increased to 4.2%, although the unrounded rate was little changed at 4.175% versus 4.141% previously. Importantly, the increase in unemployment was largely driven by a positive increase in labor force participation. The participation rate rose for the second consecutive month to 61.8%, its highest level since May, as approximately 485,000 people entered the labor force. More people coming off the sidelines to look for work can temporarily push the unemployment rate higher, but it is generally viewed as a positive sign for the labor market.

The three-month moving average of job creation declined to 51,000, but remains above the Fed’s estimated breakeven pace of approximately 10,000 jobs per month, which is the level of job creation needed to keep the unemployment rate relatively stable.

The report also influenced expectations for Fed policy. The Fed funds futures market reduced the probability of an October rate hike from 37% on Wednesday to approximately 18% following the employment release, suggesting markets now see a greater likelihood that the Fed will remain on hold at its October FOMC meeting.

Other labor-market data this week also pointed to a relatively stable employment environment. Initial jobless claims remained below 200,000 for the third consecutive week, while continuing claims declined to 1.701 million, the lowest level since March 2023.

Overall, the report was mixed and continues to reflect a low-hire, low-fire labor market. Job creation has slowed considerably, but there is not yet evidence of a significant deterioration in unemployment or layoffs.