september jobs report brings hits and misses

The long-delayed September jobs report has finally landed, arriving six weeks late due to the government shutdown, and bringing as many questions as answers about the direction of the labor market.

September showed a surprising 119,000 jobs added, the highest level since April. Over the summer, job creation had slowed significantly—to an average of just 18,500 jobs added per month between May and August. This was far lower than the three-year average of 160,300 job additions per month, and helped prompt the Federal Reserve to deliver 25 basis point cuts to the Effective Federal Funds Rate (EFFR) at policy meetings in each of September and October. 

The September report further reinforced this picture of weaker summer hiring, revising July and August totals down by a combined 33,000, and thereby making September’s larger total stand out even more.

The strongest gains in hiring came from sectors that have already been steadily expanding in recent years. Leisure and hospitality led the increases, buoyed by affluent households that continue to spend robustly on premium experiences and travel. Healthcare followed closely, sustained by demographic demand as an aging American population increasingly uses medical services. Losses, meanwhile, were concentrated in manufacturing, transportation and warehousing, extending what has been a consistent soft spot in recent months.

The unemployment rate ticked up again, rising from 4.3% in August to 4.4% in September. It was the third straight monthly increase and the highest reading in four years. But even here, the story is mixed. Much of the rise in the overall rate stemmed from people entering the labor market, and less from people losing their jobs. More than half a million more workers joined the labor force in September, and the share of the population employed actually edged up by a tenth of a percentage point to 59.7%.

But strain is already apparent in various corners of the labor market. The share of long-term unemployed (those out of a job for longer than six months), while slightly lower than the 25.7% in August, remained historically elevated at 23.6%. Youth unemployment also eased modestly to 10.4% from 10.5% in August, but it is up sharply from 9.0% in January. Both of these metrics now sit at their highest levels since 2016, excluding the pandemic period. Together, they point to a labor market that is not yet shedding workers at scale through layoffs, but is struggling to absorb new or displaced workers.

In all, the report did little to settle the ongoing narrative, though it nudged market expectations for a rate cut in December upward. Odds of a December rate cut per the CME Watchtool moved from just over 30% to 40% following the release. 

Still, the Bureau of Labor Statistics has already announced that the October jobs report will be cancelled, and only a partial version is now expected to come with the November numbers, a full week after the Federal Reserve’s meeting on December 10th. That means that this will be the last view into the employment window as it makes its decision. With a mixed report and two months of missing data, it will be difficult for the Fed to build a decisive case for easing.