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How pronounced is the slowdown in the U.S. labor market?

U.S. employment painted a weaker-than-expected picture in September. According to data from the U.S. Bureau of Labor Statistics (BLS), employers added just 29,000 jobs during the month, far below the revised 133,000 gain in August.

The unemployment rate also rose to 4.2% from 4.1% in August. BLS data showed that employment across major sectors from technology to retail changed only modestly, while hiring slowed sharply from the previous month.

How does the weak data affect the Fed's rate path?

Economists say the latest figures point to a cooling U.S. economy, an important signal for the Federal Reserve (Fed). For markets, the key takeaway is that the chances of consecutive rate hikes have weakened.

Early economist reactions

Schroders' George Brown said job growth has been highly volatile throughout the year, so one weak report may not mean a lasting collapse. Capital Economics' Bradley Saunders said declining public-sector employment and changes in temporary visa policy have dragged on overall growth, so the data should not be read as a disaster on its own.

  • Jeffery Roach, chief economist at LPL Financial, said there is a clear divide between goods-producing sectors supporting the artificial intelligence boom and the services sector.
  • According to Roach, the broader softening in the labor market is reducing the odds that the Fed will deliver two more rate hikes.

The economic outlook is also spilling into the election atmosphere

The employment report presented a picture that conflicts with President Donald Trump's claim that the U.S. economy remains strong. According to the analysis cited in the source, this disconnect could make campaign messaging harder for Republicans ahead of the midterm elections.

According to an AP/NORC poll, only 17% of Americans approve of the president's handling of the cost of living. Support for his economic stewardship has also fallen to a new low of 26%.

Trump himself admitted at a White House event this week that he has struggled to explain how well the economy is performing. September's jobs data suggests the gap between economic perception and official figures could draw even more scrutiny in the weeks before the vote.

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