The labor market that spent all summer refusing to crack finally gave way in September — and it took two earlier months down with it.
Nonfarm payrolls rose by just 29,000 last month, the Bureau of Labor Statistics reported Friday, against forecasts that clustered between 84,000 and 90,000. The unemployment rate ticked up to 4.2% from 4.1%. But the revisions did the real damage: July was cut from a gain of 21,000 to an outright loss of 10,000, and August fell from 162,000 to 133,000. Together, the two months show 60,000 fewer jobs than previously reported.
That makes July the first negative payroll print of the current cycle, and it reframes the past quarter as a stall rather than a slowdown.
Wage Growth Slows to 3.0%
The earnings data pointed the same direction. Average hourly earnings rose just 0.1% in September, up 5 cents to $37.81, bringing the annual gain to 3.0% — soft by the standards of a labor market that was producing 4%-plus wage growth a year ago.
Industry detail was narrow. Health care added 17,000 jobs, construction 11,000 and manufacturing 9,000, with nonresidential specialty trade contractors contributing 12,000. Financial activities shed 7,000 and nursing and residential care facilities lost 9,000. Most major categories — retail trade, transportation, government — were essentially flat.
The report also exposed an unusually wide gap between the two main employment gauges. ADP had reported on September 30 that private payrolls rose 90,000, beating the Dow Jones consensus of 68,000 and reversing a three-month slowdown. "It's a strong report," ADP Chief Economist Nela Richardson said at the time. "After a three-month slowdown, job creation rebounded and pay growth remained solid." Friday's BLS figures told a different story.
Rate Hike Bets Collapse for October
The market reaction was swift and one-directional. According to CNBC, traders on the CME FedWatch tool put the odds of a quarter-point October hike at 17%, down from roughly 36% a week earlier. On Kalshi, October hike odds fell to 18% from nearly 70% over the same span. December, however, is still live — FedWatch odds for a hike by then remain above 75%.
Treasury yields fell across the curve. CNBC reported the 10-year yield down nearly 6 basis points to 5.18% after touching its highest level since 2002 earlier in the week, the policy-sensitive 2-year off 6 basis points to 4.73%, and the 30-year down 3 basis points to 5.57%.
Equities took the weak data as good news. In morning trading the S&P 500 was up roughly 0.9% and the Nasdaq about 1.4%, with the Dow and Russell 2000 posting smaller gains. Gold climbed to roughly $4,217 an ounce and silver to about $61.81, up 0.9% and 2.2% respectively, according to Trading Economics.
"Flashing Yellow"
Economists were careful not to call it a break. Mohamed El-Erian told Yahoo Finance the report was "weak across the board when it comes to the demand for labor," adding that "the demand side is flashing yellow." Vanguard senior economist Adam Schickling framed it as continuity rather than rupture: "The underlying story is still a low-hire, low-fire labor market." He said the data "strengthens the case for the Federal Reserve to remain patient."
Others saw less signal. "This data won't shift the broader decision-making calculus for the Fed," said Natixis Chief Economist Chris Hodge. RSM Chief Economist Joe Brusuelas noted the economy needs only about 35,000 jobs a month to hold labor market conditions stable — a bar September nearly cleared.
The tension is the one the Fed has been stuck on all year. Thursday's ISM manufacturing prices-paid index surged to 77.9, signaling intensifying cost pressure, while Friday's payrolls suggest hiring is already losing momentum. The October 28 meeting now looks like a hold. December is where the argument moves.
Sources: U.S. Bureau of Labor Statistics (Employment Situation Summary, September 2026); CNBC; Yahoo Finance; ADP National Employment Report; NPR; Trading Economics