US Job Growth Slowed Sharply in September

U.S. employers added just 29,000 jobs in September, well below expectations, while the unemployment rate edged up to 4.2%, underscoring a labor market with flagging momentum. The unemployment rate has remained between 4.1% and 4.3% since March, according to the Bureau of Labor Statistics.

The September report also included significant downward revisions. July payrolls were revised from a previously reported gain of 21,000 to a loss of 10,000, while August gains were lowered from 162,000 to 133,000. Together, the revisions reduced payroll growth for those two months by 60,000 jobs.

“The September jobs report was pretty disappointing,” said Julius Probst, senior economist at Appcast. “This weakness is a pretty big surprise for most forecasters who expected an increase of about 90,000 jobs. The six-month moving average of job growth is now back at 65,000, a pretty steep decline from just one month ago when it was closer to 100,000.”

But the picture may be more nuanced than the headline number suggests.

“September’s job gains came in below economist projections,” said Geno Cutolo, president of Adecco North America. “Despite this, we continued to see areas of growth, including in healthcare, construction, and manufacturing.” Cutolo expects employers to continue hiring for seasonal demand and the holiday period.

The broader challenge remains matching available workers with the skills employers need. “Employers continue to face challenges finding the right talent, particularly for skilled roles, as skills gaps and differences in talent availability persist across markets,” Cutolo said. He added that employers are increasingly seeking AI-ready talent, alongside capabilities such as critical thinking, communication, and emotional intelligence.

“Employers were likely responding to the tighter fiscal environment, as high Treasury yields and a Fed rate hike make borrowing more expensive, thus dampening plans for hiring and expansion in the near term,” said Nicole Bachaud, labor economist at ZipRecruiter. “But workers seem to still see a chance for more opportunities as marginally attached and discouraged worker populations moved back into the official labor force, and the participation rate increased for the second month in a row.”

Ger Doyle, regional president, North America, at ManpowerGroup, sees a shift toward more targeted hiring.

“Today’s report points to greater caution among employers,” Doyle said. “Even in a softer market, demand persists for selected skills and capabilities, creating a growing distinction between roles tied to strategic priorities and those dependent on broader workforce expansion.”

That selectivity could make recruiting for critical roles particularly challenging.

“The roles that matter most also take the longest to fill,” Doyle said. “Job postings stay open an average of 61 days, with searches extending to 68 days for medical and health roles and 77 days for engineering.”

Cory Stahle, a senior economist at Indeed, noted that the labor market has remained more resilient than many expected despite slower hiring and economic uncertainty. “Hiring, quitting, and layoffs have moved sideways, settling into a rhythm in which employers are holding on to the workers they have and holding off on hiring the ones they don’t,” he said.

Glassdoor Chief Economist Daniel Zhao said that the latest data show a labor market “still struggling to accelerate smoothly into consistent, faster growth.”

For HR executives, that combination points toward continued discipline around headcount, with greater emphasis on critical skills and retention. “The market is no longer defined simply by how many people employers hire, but by how precisely they hire,” Doyle said.

The report also comes as the Federal Reserve weighs employment conditions alongside persistent inflation. The Fed raised its target federal funds rate by a quarter percentage point in September, while saying inflation remained elevated.

“The labor market is still fighting to find its footing, and it’s unlikely to do so until inflation is under control,” Bachaud said.

Stahle agreed, saying that “The labor market is still aloft, but it’s unclear how long it can keep circling while it waits for inflation to clear the runway.”

He added that an aging population and a diminishing labor supply are also weighing on the labor market, reducing the economy’s natural momentum and leaving less room to absorb turbulence. “None of this means a hard landing is coming, but it does mean the margin for error is narrowing,” he said.

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Healthcare Helps Offset Broader Hiring Weakness

The labor market’s uneven performance in September was reflected in a wide divergence across industries, with healthcare, construction, and manufacturing adding jobs while several white-collar sectors contracted.

Healthcare employment increased by 17,000, although hiring has slowed from its previous pace. “Healthcare continued to see positive job gains, but that growth has slowed over the past few months from the prior 12-month average, Bachaud said.

Construction added about 11,000 jobs, while manufacturing employment rose by 9,000. The gains reflect continued investment in data centers and related infrastructure.

“Construction job growth was in line with recent trends, despite a slowdown in job openings,” Bachaud said. “Along with a higher-than-expected increase in construction spending this week, the construction labor market seems to remain on stable footing.”

The weakness in temporary hiring may be noteworthy. Temporary help services declined by 10,900 jobs following eight consecutive months of growth.

“The turnabout in temporary help services underscores the fragility of the industry’s ongoing recovery, as well as the labor market conditions which both firms and their clients must navigate,” said Noah Yosif, chief economist at the American Staffing Association.

The decline in temp services may signal weakening demand for hiring for the coming months, Probst said. “Instead of changing headcount for their permanent workforce, employers often turn to temp services to scale up and down more quickly, to be able to respond to changing economic conditions,” he explained.

White-collar industries also shed jobs, including information (-10,000), professional and business services (-9,000) and financial activities (-7,000). Government employment declined by 17,000.

Zhao cautioned against overinterpreting monthly swings in education employment, noting that local and state government education payrolls declined by 1,800 jobs and 2,700 jobs respectively, despite the start of the school year. “It is a useful reminder not to focus too much on one month’s changes in a highly seasonal industry like education.”

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Unemployment Edges Higher

The increase in the unemployment rate largely reflected more people entering the labor force rather than a surge in workers losing jobs. For employers, the data points to a labor market characterized by limited turnover and increasingly cautious hiring.

“The labor force grew for the second month in a row in September, adding 485,000 people,” Bachaud said. “As such, the participation rate increased to 61.8%.”

She noted that new entrants and reentrants increased, while the number of marginally attached and discouraged workers declined.

The duration of unemployment remains a concern. The average unemployed worker had been out of work for 24.8 weeks in September, up substantially from 19.4 weeks in November 2023. The share of people unemployed for more than 27 weeks rose to 27.1%.

Zhao said that persistent unemployment helps explain worker anxiety despite relatively low overall unemployment. “Even if the job market could be described as low-fire, the sluggish hiring rate means unemployed workers are staying unemployed longer, raising the cost of being laid off to workers.”

At the same time, participation among prime-age workers continued to improve. “Prime-age labor force participation has increased from 83.4% to 83.7%, meaning that it’s edging closer to its all-time high in recent decades,” Probst said.

That environment may mean continued retention of existing talent alongside highly targeted hiring.

Wage Growth Cools

Wage growth continued to slow in September, offering some relief on inflationary pressures but raising concerns for workers facing higher living costs. Average hourly earnings increased just 0.1% for the month, bringing the 12-month gain to 3%, the slowest annual increase since May 2021.

“Growth in average hourly earnings has slowed significantly over the course of 2026,” Zhao said. “Average hourly earnings are down from 3.1% in August and 3.2% in July.”

Probst said, “Average hourly earnings have dipped as inflation-adjusted wage growth has been in negative territory in recent months. With oil prices remaining high, this is unlikely to change by year-end.”

For employers, slower wage growth could ease compensation pressures, but workers may have less purchasing power. “Wages continue to trail inflation, which is the real risk to the delicate stability of today’s labor market,” Yosif said.

Bachaud added, “Workers might be expecting that new opportunities will be on the horizon, but those new opportunities don’t appear to be coming with higher pay any time soon.”