Don’t Rush to Celebrate September Jobs Data

Key Takeaways

• September jobs data showed a stronger-than-expected month of gains, but economists say there are still signs of weakness.
• The unemployment rate rose to 4.4%, and job growth was flat or negative in many sectors.
• This will be the last official labor market data released before the Fed’s December meeting.

Wall Street breathed a sigh of relief Thursday morning after new government data showed the US economy added 119,000 jobs in September, far more than the 50,000 economists expected.

Those gains were a welcome surprise after weeks of gloomy headlines and warnings about a rapidly cooling labor market. The unease was amplified by uncertainty stemming from the US government shutdown, which delayed some official employment data by more than a month at a critical juncture for the economy and monetary policy.

But despite Thursday’s positive headlines, economists say September’s job data holds continued evidence of slowing momentum.

“This marks a significantly weaker-than-normal job market,” says Morningstar senior US economist Preston Caldwell, who says it is “still trending downwards.” The unemployment rate ticked up to 4.4% in September, its highest level since October 2021. Meanwhile, many sectors showed no jobs growth for the month. Revisions to August’s data showed a loss of 4,000 jobs, rather than the originally reported gain of 22,000.

Moreover, Thursday’s data does not capture the full economic impact of the shutdown or other developments in the labor market over the past seven weeks. “A closer look reveals that job growth remained fragile and narrowly concentrated heading into the longest government shutdown on record,” said EY-Parthenon senior economist Lydia Boussour in emailed commentary.

Job Market Still Weaker Than Normal, Shutdown Impact Still to Come

Accounting for upcoming revisions to the data, the US economy added jobs at a 0.3% three-month annualized rate in September and a 0.4% annual rate for the year, according to Morningstar’s Caldwell. That’s significantly slower compared with last year, when nonfarm payrolls grew at a rate of 1.3%. Between 2017 and 2019, annual payroll growth averaged 1.5%.

Caldwell also points out that most industries have seen flat or declining employment over the past six months. Excluding the healthcare and social assistance category, total employment has declined by 28,000 jobs over that period. “Corporate cost cutting (perhaps enabled partly by AI) is taking a toll,” he says.

The government shutdown, which ended earlier this month after 43 days, will continue to complicate the picture in the months ahead. “This report shows the labor market was stable, and perhaps even rebounding, prior to the government shutdown, however future data will likely be impacted by the shutdown and the associated economic disruptions it undeniably caused,” says Dominic Pappalardo, chief multi-asset strategist for Morningstar Wealth.

EY’s Boussour expects to see federal employment drop sharply in October, with losses of 100,000-150,000 jobs.

Will the Fed Pause Rate Cuts in December?

September’s jobs report did little to ease the pressure on the Federal Reserve, which will meet in December for its final policy-setting meeting of the year. Central bankers cut interest rates once in September and again in October, bringing the federal-funds rate to a target range of 3.75%-4.00%.

Fed officials have been increasingly divided in recent weeks over the best path for monetary policy. Doves advocate for further rate cuts to prop up a slowing labor market, while a growing chorus of hawks pushes for a pause, citing lingering inflationary pressures and strong signs of growth elsewhere in the economy. In a note to clients, economists from Strategas said they expect September’s jobs data to fuel “vigorous debate” at the upcoming meeting.

Disruptions to official economic data releases have only amplified the uncertainty. “[Fed Chair Jerome] Powell has stated that the lack of data has left them in a bit of a ‘fog’—far from ideal for a group that is adamant about being data-dependent,” says Morningstar’s Pappalardo.

Morningstar’s Caldwell expects the Fed to stand pat next month: “Given that today’s numbers were not as bad as feared, in conjunction with hawkish statements from the Fed recently, it does appear that the Fed will skip a cut in December. But with the negative trend in labor markets remaining in place, we’d expect the Fed to resume cutting in their next meeting in January 2026.”

Markets now see roughly 40% odds of a quarter-point rate cut next month, according to CME FedWatch—up from 32% on Wednesday but down from close to 100% last month.