US job growth slows sharply in September as unemployment rises to 4.2%

Overview

Updated 2 hours ago

The US economy added just 29,000 jobs in September, less than a third of the 90,000 forecasters expected. The unemployment rate ticked up to 4.2% as 485,000 people entered the labor force.

The report is the last major jobs data before the November 3 midterm elections, and it lands as the Federal Reserve weighs another rate hike in December. Economists describe a 'low-hire, low-fire' labor market: workers keep their jobs, but jobseekers struggle to find them.

Why it matters

If hiring keeps slowing, the Fed may hold rates in December — but sticky inflation could force a choice between price stability and jobs.

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Key Indicators

29,000

Jobs added in September

Nonfarm payrolls grew by 29,000, far below the 90,000 forecasters expected.

4.2%

Unemployment rate

Rose from 4.1% in August as 485,000 people entered the labor force.

61.8%

Labor force participation rate

Highest since May, up 0.2 percentage points from August.

485,000

People who entered the labor force

The influx pushed unemployment up despite household employment rising by 406,000.

3.0%

Annual wage growth

Average hourly earnings rose 0.1% in September, cooling from 3.1% in August.

60,000

Downward revision to July-August payrolls

July was revised to show 10,000 job losses; August was cut by 30,000.

Voices

Curated perspectives — historical figures and your fellow readers.

Ever wondered what historical figures would say about today's headlines?

People Involved

Jerome Powell

Chair of the Federal Reserve

Led the Fed's September rate hike, its first in three years

Organizations Involved

Board of Governors of the Federal Reserve System

Central bank

Raised rates 25 basis points in September 2026, first hike in three years

The US central bank, which sets the federal funds rate.

U.S. Bureau of Labor Statistics (BLS)

Federal statistical agency

Produces the monthly jobs report

The Labor Department agency that compiles the monthly employment report.

Timeline

September 2026 October 2026

2 events Latest: 2 days ago

October 2026
September jobs report shows sharp slowdown
Latest Economic data

Payrolls added 29,000 jobs, unemployment rose to 4.2%, and July-August figures were revised down by 60,000.
2 days ago
September 2026
Fed raises rates for first time in three years
Policy

The Federal Reserve raised its benchmark rate 25 basis points to 3.75%-4.00%, flagging further increases ahead.
September 2026

Scenarios

Fed hikes again in December as inflation stays sticky

Possible Resolves by Dec 16, 2026

Discussed by: Reuters, economists polled

Inflation remains above the Fed's 2% target, and the September report shows no broad layoffs. If price pressures persist, the Fed raises rates again in December, its second hike in the cycle.

Fed holds rates through year-end as labor market cools

Likely Resolves by Dec 16, 2026

Discussed by: CNBC, market expectations

Weak job growth and cooling wages give the Fed cover to hold rates in December. The 'low-hire, low-fire' labor market persists, and the Fed waits for clearer inflation data before moving again.

Labor market deteriorates as Iran conflict disrupts economy

Possible Resolves by Mar 1, 2027

Discussed by: Reuters economists

The US-Israeli war with Iran drives energy prices higher and strains supply chains, hitting hiring by late 2026 and into 2027. Payroll growth slows further or turns negative, and unemployment rises above 4.5%.

Historical Context

3 moments from history that rhyme with this story — and how they unfolded.

February 1994 – July 1995

Fed's 1995 soft landing

The Fed raised rates from 3% to 6% through 1994-95 to cool inflation. It paused in early 1995 and cut rates in July 1995 as inflation eased, achieving a rare soft landing.

Then

Inflation cooled without a recession, and the expansion continued through the 1990s.

Now

The episode became the model for how the Fed can tighten without breaking the labor market.

Why this matters now

The current Fed faces the same test — cooling inflation without pushing unemployment up sharply.

December 2015 – December 2016

Fed's 2015-2016 pause

The Fed raised rates in December 2015, its first hike in nearly a decade, then held for a year amid weak global growth and market turmoil. It hiked again in December 2016.

Then

The pause let the Fed assess the economy without committing to a tightening path.

Now

It showed the Fed can hold rates steady for extended periods after a single hike.

Why this matters now

Markets now expect a similar pause after September's hike, with the next move possibly in December.

2007 – 2008

2007-2008 labor market slide

Payroll growth slowed through 2007 and turned negative in early 2008 as the housing bust spread. The recession began in December 2007, and unemployment rose from 4.7% to over 10% by late 2009.

Then

The labor market deteriorated rapidly once the financial crisis hit.

Now

It showed how a gradually cooling labor market can accelerate into a downturn.

Why this matters now

The current 'low-hire, low-fire' market could deteriorate if an external shock, like the Iran conflict, hits the economy.