The U.S. economy added only 29,000 jobs in September, according to new data released Friday by the Bureau of Labor Statistics (BLS), while the unemployment rate edged up to 4.2 percent.
The weak report also came with downward revisions. BLS initially reported that employers added 162,000 jobs in August, following gains of 31,000 in June and 21,000 in July. On Friday, the agency revised those figures, now showing the economy lost 10,000 jobs in July and added 133,000 in August.
The numbers come just weeks after the Federal Reserve raised interest rates by a quarter point, its first hike in more than three years, amid concerns about inflation.
Jerry Tempelman, vice president of economic and fixed income research at Mutual of America Capital Management, said the report “raises questions about the durability of the labor market after the Federal Reserve’s first interest rate increase since 2023.”
Tempelman added that the rising jobless rate “warrants close attention,” warning that higher unemployment combined with slower hiring could signal the Fed’s tightening may weigh on the economy more than expected.
The unemployment rate has stayed below 5 percent since August 2021. It had spiked to 14.8 percent early in the COVID-19 pandemic, the highest level since the Great Depression.
Inflation, meanwhile, has remained above the Fed’s 2 percent target for more than five years and has risen in recent months amid energy shocks tied to the Iran war.
The Bureau of Economic Analysis reported Wednesday that annual inflation, as measured by the personal consumption expenditures (PCE) price index, came in at 3.4 percent in August, down from 3.7 percent in July. Core prices, which exclude volatile food and energy costs, rose 3 percent year over year, according to the PCE, the Fed’s preferred inflation gauge.
Fed Chair Kevin Warsh said last month that unemployment is “running consistent with full employment” and that the central bank’s goals of maximum employment and price stability are not in conflict over the “medium” term.
“Economic growth — that is ensuring continuous, sustainable, durable, economic growth — that’s the business we’re in,” Warsh told reporters after the rate hike.
Traders now see roughly a 72 percent chance that the Federal Open Market Committee (FOMC) will hold rates steady at a range of 3.75 percent to 4 percent at its Oct. 27-28 meeting, according to the CME FedWatch tool.
“A softer-than-expected jobs report should put an October Fed hike firmly on the back foot,” said Seema Shah, chief global strategist at Principal Asset Management. She said weaker payrolls, softer wage growth and higher unemployment point to a cooling labor market.
Shah said the “decisive release” will be this month’s consumer price index (CPI) report, adding that “today’s data argues for patience, not panic.”
Several FOMC officials have recently projected future rate hikes while saying they will keep watching the data. Anna Paulson, president of the Federal Reserve Bank of Philadelphia, said last week that “returning inflation to 2 percent is nonnegotiable.”
Vanguard senior economist Adam Schickling said Friday’s report “strengthens the case for the Federal Reserve to remain patient,” noting the labor market has neither deteriorated sharply nor meaningfully strengthened.
The Fed’s next meeting falls less than a week before the midterm elections, as President Trump and Republicans battle economic headwinds and political history to keep Democrats from seizing control of Congress.
