U.S. job growth slows sharply in September, unemployment rises to 4.2%

The United States added only 29,000 jobs in September, far fewer than the roughly 90,000 expected by surveyed economists, according to Labor Department data. August’s gain was also revised down, to 133,000 jobs from the 162,000 initially reported.

Economists say the weakening mainly reflects a calendar quirk: Labor Day fell late in September, distorting the seasonal adjustments. There are no signs of mass layoffs — new claims for unemployment benefits remain at their lowest levels in 57 years, as Reuters reports.

The unemployment rate rose to 4.2% in September, from 4.1% in August. The rate remains low as retirements and the Trump administration’s immigration restrictions shrink the labour supply. Estimates suggest the economy needs 50,000 to 80,000 new jobs a month to keep pace with working-age population growth.

Experts nevertheless warn of headwinds: they expect the U.S.-Israel war against Iran, high energy prices — with oil at record levels — and strained supply chains to begin unsettling the labour market from the end of this year and through 2027. An ISM survey on Thursday showed growing anxiety among manufacturers over the trade war with Canada, while tariffs remain a concern.

The Federal Reserve (Fed) last month raised its benchmark interest rate by 25 basis points, to 3.75%–4.00% — the first increase in three years — and left the door open to further rises. But the weak jobs report cut the chances of another rise at the October 27–28 meeting: markets now put the probability at around 22%, compared with around 69% a week ago, according to CME FedWatch, after softer-than-expected inflation readings in August and July.

The market reaction was positive: U.S. stocks rose slightly after the report — S&P 500 futures climbed 0.9% and Nasdaq futures 1.2% — bond yields fell, the dollar weakened 0.1% and gold rose 0.8%. Analyst Peter Cardillo of Spartan Capital Securities said the soft report, with no wage inflation pressures, is market-friendly and suggests the Fed may stay on hold in October.