Lukewarm September Jobs Report Disappoints

The Week Ahead

The minutes of the Fed’s September 15-16 meeting will help interpret last week’s muddled PCE report, which revised down annual PCE inflation (Both total and core) by 0.3 percentage points in the three months through July—but showed both rates unchanged in August from July, and indeed, since early 2026. When the FOMC met in September, forecasters already expected favorable revisions to PCE inflation because of updated measures of certain services prices, but they also expected inflation’s trend to remain unchanged—and not near the Fed’s target. FOMC members likely discussed the revisions at the meeting. If the minutes show they viewed the revisions as fundamentally improving the inflation narrative, that would imply less urgency for further rate hikes. If FOMC members instead thought the revisions are more a technical adjustment, they probably still see a persuasive case for more hikes.

Last Week in Review

The lukewarm September jobs report disappointed, though not enough to shift the Fed’s focus from inflation. Employers added a meager 29,000 payroll jobs, undershooting the 90,000 consensus. In the August jobs report, it had looked like job growth was accelerating, but now that’s been revised away: Payrolls averaged a 51,000 increase in the third quarter, below their 68,000 year-to-date average. September’s job growth was concentrated in health care and social assistance, with additional gains in manufacturing, construction, and food services and drinking places offset by losses elsewhere.

The unemployment rate edged up to 4.2% from 4.1%, although the increase was only 0.03 percentage point before rounding (To 4.17% from 4.14%). The labor force participation rate rose two tenths of a percent, lifted by more workers between 16 and 54 years of age, while the rate for those 55 and older fell to the lowest since 2005. The unemployment rate has changed little since the start of the year, a sign that job creation is keeping up with new jobseekers. Wage growth was another soft spot in September, slowing to the weakest year-over-year increase since the post-pandemic expansion took off—implying that workers have limited opportunities to move up to better-paying jobs.

AI seems to be weighing on employment in some parts of the job market and boosting hiring in others. Information, finance and insurance shed jobs and are down a combined 213,000 from a year ago (-2.2%). These industries’ rapid adoption of AI could help explain this striking decline, which is unusually out of step with GDP and other broad measures of economic growth. At the same time, employment in computer and mathematical occupations across all industries rose 3.5% from a year earlier and accounted for a record share of total employment. If AI were simply a job slayer, employment in these occupations would be expected to fall since they are ground zero for AI’s earliest and clearest potential for productivity gains. Collectively, these details of the jobs report suggest that businesses are hiring more AI-empowered technical workers to automate tasks previously done manually. The transformation may be faster than other recent technological shifts, but the broad pattern echoes earlier waves of clerical automation that have swept over white-collar work since the days of Lotus 1-2-3. Low hiring is disproportionate affecting entry-level workers. The level of unemployment among workers aged 20 to 24 with no prior work experience, a good proxy for the Class of 2026, ended the summer at its highest September level since 2014, when the unemployment rate for all workers was considerably higher—5.9%.