September's job gains in the United States came in below expectations while wage growth decelerated, signaling that employers are becoming more cautious about hiring as costs climb.

Data released Friday by the Bureau of Labor Statistics showed nonfarm payrolls rose by 29,000 in September, with figures for the prior two months revised lower. The increase fell short of forecasts. The unemployment rate climbed to 4.2%.

Solid consumer spending and robust business investment have provided support for hiring, yet many cost-conscious employers remain reluctant to expand their workforces. Layoffs, however, stayed relatively limited.

With the jobless rate still low by historical standards, Federal Reserve officials can keep their focus on inflation as they weigh when to raise interest rates again. Following the release, traders scaled back their bets on a Fed rate hike in October.

Thomas Simons, chief US economist at Jefferies LLC, said in a note that "for the Fed, this data should completely eliminate the possibility of an October rate hike. It now appears that policymakers who have emphasized there is still time before another hike is needed are more likely to remain patient."

This latest employment report is the final one before November's midterm elections, with the state of the economy expected to be a central factor in how Americans cast their votes. The labor market is part of that picture, but much of the focus remains on lingering concerns about the cost of living, even as consumers continue to spend.

Sector Performance

Local government employment declined, and some industries more heavily affected by artificial intelligence also saw job losses, including information, professional and business services, and financial activities. Meanwhile, investment in data centers and other AI-related infrastructure supported job gains in construction and manufacturing. Healthcare as well as leisure and hospitality also added jobs.

At the same time, average hourly earnings rose 0.1% from August, weaker than expected, and were up 3% year over year, the slowest annual wage growth since 2021. Average weekly hours were unchanged.

Michael Pearce, chief US economist at Oxford Economics, said that "the labor market remains solid, but it is not generating inflationary pressure."

Economic Research View

"The September nonfarm payrolls report shows that hiring slowed after an unusually strong August. Combined with the rise in the unemployment rate, this report is not strong enough to support a Fed rate hike in October. We expect the Fed to hold rates steady for the remainder of this year." — Anna Wong, Andrew Sacher and Eliza Winger

The employment report consists of two surveys: one of businesses, which produces the nonfarm payrolls count, and one of households, which is the basis for data such as the unemployment rate and the labor force participation rate. The household survey also has its own measure of employment, which rose sharply during the month. The labor force participation rate, or the share of the population that is working or actively looking for work, rose to 61.8% in September, a four-month high.