The U.S. economy added far fewer jobs than expected in September, while the unemployment rate moved higher.
The weaker labor-market data could strengthen the case for the Federal Reserve to leave interest rates unchanged at its next policy meeting later this month.
U.S. Payroll Growth Falls Short of Forecasts
Nonfarm payrolls increased by just 29,000 in September, according to data from the U.S. Labor Department.
Economists had expected the economy to add around 89,000 jobs.
That was also significantly below the 162,000 jobs initially reported for August.
Previous Jobs Data Revised Lower
Earlier employment figures were also revised down.
The change in July payrolls was lowered by 31,000, turning an initially reported gain of 21,000 jobs into a decline of 10,000.
As a result, total employment growth for July and August combined was 60,000 lower than previously estimated.
Over the previous 12 months, average monthly payroll growth stood at around 45,000 jobs.
Healthcare Hiring Remains Positive
Healthcare continued to add jobs, although the pace of growth slowed compared with its 12-month average.
Financial activities employment fell by about 7,000.
Employment in the sector is now down by approximately 129,000 from its recent peak in May 2025.
Most of those losses came from the insurance industry, according to the Bureau of Labor Statistics.
Unemployment Rate Rises to 4.2%
The unemployment rate increased to 4.2% in September.
Economists had expected it to remain unchanged at 4.1%.
The higher unemployment rate added to signs that the U.S. labor market may be losing momentum.
Fed Rate Hike Expectations Fall
Investors are closely watching the jobs data ahead of the Federal Reserve’s two-day policy meeting on October 27-28.
Expectations for another rate hike have fallen sharply in recent days.
That shift has been driven by softer inflation data and comments from several Fed officials suggesting that another immediate increase may not be necessary.
Following the latest employment report, markets were pricing in roughly an 84% chance that the Fed would keep rates unchanged.
That was up from around 76% one day earlier and just 36% the previous week.
Chances of Another Rate Hike Drop
The probability of another Federal Reserve rate increase fell to around 16%.
One week earlier, markets had placed the likelihood near 64%.
The rapid change highlights how sensitive interest-rate expectations remain to incoming economic data.
Wage Growth Also Comes in Softer
Average hourly earnings rose by just 0.1% from the previous month.
That was weaker than expected and added to the softer overall tone of the employment report.
Analysts at Vital Knowledge said the immediate market reaction was likely to be more dovish.
However, they also noted that inflation remains a major concern for Federal Reserve officials.
Fed Still Focused on Inflation Risks
The Federal Reserve raised interest rates by 25 basis points in September as policymakers continued efforts to control inflation.
Price pressures have remained elevated amid higher energy costs and strong spending on artificial intelligence infrastructure.
Although weaker employment data could encourage the Fed to pause, policymakers must still balance labor-market weakness against persistent inflation risks.
Weak Jobs Data Could Pressure Treasury Yields
Jesse Marre, Senior Portfolio Manager at Hilbert Group, said the report could help pull U.S. Treasury yields lower.
The benchmark 10-year Treasury yield recently reached its highest intraday level since 2002 before retreating.
Following the jobs report, both the 10-year and rate-sensitive 2-year Treasury yields moved lower.
Bond yields generally move in the opposite direction to bond prices.
U.S. Stock Futures Move Higher
Futures tied to the major U.S. stock indices pointed higher after the employment report.
Investors appeared to welcome the possibility that weaker labor-market data could reduce the need for further Federal Reserve tightening.
For markets, the next major focus will be upcoming inflation data and comments from Fed officials ahead of the October meeting.
