US job growth slumps to 29,000 in September, unemployment rises to 4.2%

The US labour market lost considerable momentum in September, with employers adding just 29,000 jobs and the unemployment rate edging up to 4.2 per cent, reinforcing signs that hiring is cooling and prompting financial markets to reassess the outlook for Federal Reserve monetary policy.

The increase in nonfarm payrolls was far below economists’ forecast of around 89,000 to 90,000 jobs and represented a sharp slowdown from August. The weakness was compounded by downward revisions to previous months, suggesting employment growth over the summer was softer than initially estimated.

Previous gains revised

The Bureau of Labor Statistics revised August’s payroll increase down from 162,000 to 133,000. July’s figure was lowered by 31,000, turning what had previously been reported as a gain of 21,000 jobs into a loss of 10,000.

Together, the revisions removed 60,000 jobs from the previously reported July and August totals. The latest figures added to evidence that the pace of employment creation in the world’s largest economy has moderated substantially.

Unemployment edges higher

The unemployment rate rose to 4.2 per cent from 4.1 per cent in August, against expectations that it would remain unchanged. While the increase was modest, it added to evidence of a labour market becoming less tight after an extended period of resilience.

Hiring remained subdued across much of the economy. Healthcare continued to generate employment, but job creation in the sector was weaker than its average pace over the preceding year.

Wage growth cools

Wage data also pointed towards easing labour-market pressure. Average hourly earnings increased by just 0.1 per cent during September to $37.81, while wages were 3 per cent higher than a year earlier.

The average workweek remained unchanged at 34.4 hours. The combination of weaker hiring and softer wage growth will be closely watched by the Federal Reserve as policymakers assess inflationary pressures and the broader strength of the economy.

Markets react

US stock index futures moved higher following the weaker-than-expected employment report as investors recalibrated expectations for the future path of interest rates. Treasury yields also came under pressure as traders assessed what the slowdown in hiring could mean for monetary policy.

The reaction reflected the significance of employment data for the Fed’s policy decisions. A sustained weakening of the labour market could give policymakers greater room to adopt a less restrictive stance, although inflation and other economic indicators will remain important.

Fed policy in focus

Attention will now turn to incoming inflation and economic data as investors assess the Federal Reserve’s next move. The September employment report provides policymakers with fresh evidence that demand for workers is cooling after the exceptionally tight labour-market conditions of previous years.

Layoffs have not surged and unemployment remains relatively low, but the combination of weaker hiring, downward revisions to previous payroll figures and moderating wage growth suggests the American labour market is losing momentum.