Executive summary
The September employment report—delayed by the government shutdown—showed that U.S. payrolls added 119,000, more than doubling the consensus expectations for 51,000. That’s the largest monthly increase in five months; however, it was coupled with downward revisions to the previous two months, including flipping August to a modest negative. The revisions pulled the six-month average down to 58,500.
The details were mixed. For example, the unemployment rate nudged upward to 4.4% and wage growth slowed, but hours worked held steady, participation rose, and job gains were more broadly distributed across industries.
Shutdown-driven data gaps further cloud the near-term economic outlook. Alas, we probably won't get a clean read on the economy until early 2026. Moreover, the September uptick in headline jobs growth along with stale and incomplete inflation data and ending quantitative tightening likely means that the Federal Reserve (Fed) punts a rate cut decision from its December 10th meeting to January.
Payroll trends – Sloppy 6-month trend
Downward monthly revisions punched August into negative territory, to -4,000 from 22,000 previously reported, while July was modestly lowered to 72,000 from 79,000. That pushed the six-month average down to 58,500, its lowest since the pandemic period in 2020.
Private payrolls increased by 97,000, bumping up the total U.S. nonfarm payrolls to 159.6 million, which is an all-time high. Service-providing industries hired 87,000 workers in September, while goods producers chipped in 10,000.
Government payrolls added 22,000 workers in September as state and local hiring more than offset positions lost on the federal level. States added 16,000 positions, while local hired 9,000 – two-thirds of those new state and local government jobs were educational. Federal payrolls fell by 3,000, which is the eighth consecutive monthly decline but also the fewest over that span. Thus far, the Department of Government Efficiency (DOGE) initiative has reduced federal payrolls by 97,000, which is roughly half of the 200,000 DOGE-related cuts we anticipate in 2025.
A review of the major industry trends
Four of the 11 major industry groups reduced payrolls in September.
Health care, within the education/health services industry group, remains the U.S. economy’s proverbial bell cow, adding 57,000 during the month. On its own, health care is averaging 63,000 new jobs for past six months, which is more than the rest of the major industry groups combined. Private education services added 2,000 positions during the month.
Leisure and hospitality payrolls jumped by 47,000, matching their largest increase in 17 months. Three quarters of the new positions were at restaurants and bars, which added 36,500, the most in six months. While hiring during the summer season was rather lackluster compared to the prior few years, payrolls for the overall leisure and hospitality sector increased 1.4% in the past year compared to 0.8% for the broader U.S. economy.
Retailers added 14,000 jobs during the month, led by gasoline stations and food & beverage retailers.
On the downside, transportation & warehousing remained weak, shedding 25,300 positions, the largest decline since August 2023. Transit & ground transportation—such as taxis, limos, school, and charter bus drivers—was the only one of the 10 sub-industries that added workers in September.
The professional & business services segment lost 20,000 workers during the month, although 80% of those losses were within temporary help services, which cut 15,900 workers. That extends an ugly streak of losing jobs in 40 out of the past 42 months, down 698,100 jobs over that span for temp help.
Unemployment rate nudged higher (again), but the monthly pace of wages and hours worked held steady
The unemployment rate edged up 0.1% to 4.4%. That’s the highest level since October 2021 and above the pre-pandemic 3-year average of 4.0%; however, it remains low compared to the historical average of 5.7% since 1948 and is flat from a year ago.
However, the broader underemployment rate (U-6) increased by 0.2% to 8.1%, which is above the pre-pandemic 3-year average of 7.8%. The labor force participation rate rose to 62.4%, up for the second month and reached a five-month high. Still, it remains 0.9% below the pre-pandemic rate of 63.3%.
Average weekly hours worked were steady at 34.2, just below the pre-pandemic average of 34.4. Within manufacturing, hours worked fell by 0.1 to 39.9, while overtime hours were unchanged at 2.9 for the second month in a row.
Average hourly earnings rose by 0.2% month over month, slower than August’s 0.4% pace and below the three-year average of 0.3%. For rank & file workers—officially known as production & nonsupervisory employees—wages rose 0.3% in September, in line with its pre-pandemic average. Annual wage growth was 3.8% for all workers and rank & file workers compared to a pre-pandemic average of 3.0% for both.
Our Take
In our view, the implications of this report appear limited given its age and the mixed tenor of data. To wit, it’s nearly 60 days old and there were signs of both strength and weakness, though none were seemingly extensive.
More broadly, the report doesn’t appear to substantially change the sloppy muddle-through trend. Meanwhile, the government shutdown has delayed much of the key economic data that would support or refute a change in the economic trend.
Alas, the lack of key economic data complicates the Fed’s December 10th meeting. We have been saying that we thought the Fed would lower rates another quarter point (0.25%) at the December or January meeting, not December and January as markets had been predicting several weeks ago.
Looking ahead, the Bureau of Labor Statistics already let the cat out of the proverbial bag – the October jobs data will be released together with the November data on December 16th, which is the week after the Fed’s December meeting. If that didn’t make a December rate cut a long shot, the release of the October Fed meeting minutes did. According to the minutes, “Many participants suggested that, under their economic outlooks, it would likely be appropriate to keep the target range unchanged for the rest of the year.”
The Fed will also end quantitative tightening on December 1st, which reinforces that even if the Fed foregoes a rate cut at the December rate decision, their progress towards a more accommodative policy stance remains intact.
Given the data delays, especially for the inflation readings, it’s increasingly likely that the Fed will simply punt a rate decision to the January 28th meeting. That’s been reinforced by a parade of Fed speakers essentially saying as much in the past couple weeks.
Moreover, there’s the growing likelihood of another government shutdown on January 30th. Waiting appears to be the likely outcome from our seat.
Bottom line
In our view, the implications of this report appear limited given its age and the mixed tenor of data. To wit, it’s nearly 60 days old and there were signs of both strength and weakness, though none were seemingly extensive.
More broadly, the report doesn’t appear to substantially change the sloppy muddle-through trend. Meanwhile, the government shutdown has delayed much of the key economic data that would support or refute a change in the economic trend.
Alas, the lack of key economic data complicates the Fed’s December 10th meeting. We have been saying that we thought the Fed would lower rates another quarter point (0.25%) at the December or January meeting, not December and January as markets had been predicting several weeks ago.
Looking ahead, the Bureau of Labor Statistics already let the cat out of the proverbial bag – the October jobs data will be released together with the November data on December 16th, which is the week after the Fed’s December meeting. If that didn’t make a December rate cut a long shot, the release of the October Fed meeting minutes did. According to the minutes, “Many participants suggested that, under their economic outlooks, it would likely be appropriate to keep the target range unchanged for the rest of the year.”
The Fed will also end quantitative tightening on December 1st, which reinforces that even if the Fed foregoes a rate cut at the December rate decision, their progress towards a more accommodative policy stance remains intact.
Given the data delays, especially for the inflation readings, it’s increasingly likely that the Fed will simply punt a rate decision to the January 28th meeting. That’s been reinforced by a parade of Fed speakers essentially saying as much in the past couple weeks.
Moreover, there’s the growing likelihood of another government shutdown on January 30th. Waiting appears to be the likely outcome from our seat.
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