The U.S. labor market showed further signs of cooling in September, with employers adding just 29,000 jobs, according to data released Friday by the Bureau of Labor Statistics. The unemployment rate edged up to 4.2%, a modest increase from the previous month.
August's job gains were revised down to 133,000 from an initial estimate of 162,000, while July's figure was revised to a loss of 10,000 jobs, indicating a more pronounced slowdown than previously thought. The labor market has been gradually losing momentum since mid-summer, with June and July originally reporting gains of 31,000 and 21,000, respectively.
Despite the recent softness, the unemployment rate has stayed below 5% since August 2021, a stark contrast to the pandemic-induced spike of 14.8% in April 2020, the highest since the Great Depression.
Inflation Remains Sticky
Inflation continues to run above the Federal Reserve's 2% target, complicating the central bank's policy path. The personal consumption expenditures (PCE) price index, the Fed's preferred gauge, rose 3.4% in August year-over-year, down from 3.7% in July, according to the Bureau of Economic Analysis. Core PCE, which excludes food and energy, increased 3.0% over the same period, still well above the Fed's comfort zone.
Energy costs have been a key driver, with recent shocks stemming from the Iran conflict adding upward pressure. This has kept inflation elevated for over five years, a persistent challenge for policymakers.
Fed Officials Signal Caution, But Hikes Possible
Federal Reserve Chair Kevin Warsh, speaking after the central bank's last rate hike, emphasized the Fed's commitment to both maximum employment and price stability. "Economic growth — that is ensuring continuous, sustainable, durable, economic growth — that's the business we're in," Warsh told reporters. He added that the Fed's actions are designed to ensure price stability, which can allow for longer-lasting growth.
Warsh has described the current unemployment rate as "running consistent with full employment," suggesting the labor market is not a primary concern. However, markets are pricing in a 72% chance that the Federal Open Market Committee (FOMC) will hold rates steady at its next meeting on October 27-28, keeping the target range at 3.75% to 4.00%, according to the CME FedWatch tool.
Several FOMC officials have signaled they could support further hikes if inflation does not ease. Anna Paulson, president of the Federal Reserve Bank of Philadelphia, said, "As always, I'll be watching the data and listening closely to what businesses and workers are telling me. But let me be clear: returning inflation to 2 percent is non-negotiable, and I will support the policy path that gets us there while carefully weighing risks to the labor market along the way."
Political Implications
The jobs report lands less than a week before the midterm elections, adding to the political stakes. The Trump administration and Republicans are facing voter frustration over the economy and inflation, while Democrats see an opportunity to seize control of Congress. The data could influence voter perceptions, though economic trends often take time to translate into political outcomes.
As the Fed navigates this delicate balance, the upcoming meeting will be closely watched for any shift in tone. Meanwhile, the labor market's cooling could ease wage pressures but also raises concerns about the durability of the expansion.
