RatesMarket noteFriday 2 October 2026, 14:50
US payrolls rose by 29,000 in September, and an October Fed rise is fading
Hiring fell short of forecasts and the two months before were revised down by 60,000. Futures now give a Fed increase on 28 October about a one-in-five chance. Two-year yields fell 7bp.
By The Notebook Desk
American employers added 29,000 jobs in September, the Bureau of Labor Statistics said on Friday, about a third of what forecasters had expected. The unemployment rate rose to 4.2% from 4.1%. The two months before were revised down by a combined 60,000. Markets read it as the end of the case for a Federal Reserve rate increase this month. Treasury yields fell, and so did the dollar.
The revisions matter as much as the new number. July, first reported as a gain of 21,000, is now a loss of 10,000. August fell from 162,000 to 133,000, according to the two vintages of the payroll series. Over the past three months, payrolls grew by an average of about 51,000 a month. Over the first nine months of the year, the average was 68,000.
| Jan | +160k |
|---|---|
| Feb | −156k |
| Mar | +214k |
| Apr | +148k |
| May | +63k |
| Jun | +31k |
| Jul | −10k |
| Aug | +133k |
| Sep | +29k |
Source: US Bureau of Labor Statistics via FRED (PAYEMS), seasonally adjusted, as published on 2 October 2026.The Macro Notebook
Where the jobs came from
Private employers added 46,000 jobs. Government shed 17,000, most of them in local government. Health care added about 17,000, construction 11,000 and manufacturing 9,000. Information, finance and business services all lost jobs.
Federal employment barely moved, at 2.68 million. It is 328,000 lower than in January 2025, after last year’s cuts, and it has been flat since February.
“The labor market wasn’t as strong as we originally thought it was,” said Brian Jacobsen of Annex Wealth Management, Reuters reported.
More people looking for work
The rise in unemployment was not all bad news. The household survey, a separate poll of homes, showed the labour force grew by 485,000 in September, and the number of people in work rose by 406,000. The participation rate rose to 61.8% from 61.6%. More people came looking for work than found it, so the unemployment rate went up by a tenth of a point. The broadest measure of slack, which also counts part-timers who want more hours, fell to 7.6% from 7.7%.
The rate has stayed between 4.1% and 4.3% since March. That is the “low hire, low fire” market that economists have described all year. Joe Brusuelas of RSM estimates that the economy now needs only about 35,000 new jobs a month to keep unemployment steady, Yahoo Finance reported. On that measure, September was enough. It was not enough for anything more.
Pay is no longer keeping up
Average hourly earnings rose 0.1% in September to $37.81, and 3.0% on the year. Prices rose 3.4% in the year to August, by the Fed’s preferred PCE measure. Workers are falling behind the oil shock, and wages are not adding to inflation pressure.
For the Fed, that is the important part. The risk in an oil shock is that higher prices feed into wages, and wages into the price of services. A slowing jobs market with soft pay makes that less likely. Mohamed El-Erian, the economist, called the report “weak across the board when it comes to the demand for labor” and said it would put “the Fed definitely on hold for October”.
Markets: lower yields, higher stocks
The 2-year Treasury yield, the most sensitive to Fed expectations, fell 7 basis points to 4.716% after the release, Reuters reported. The 10-year fell 6bp to 5.176%. The dollar index slipped 0.2% to 101.79 and gold rose 1% to $4,219 an ounce. Stock futures rose, as investors took the weak report as a reason for the Fed to stop. “The lower jobs print including the revision is, oddly enough, good news for stocks,” said Todd Schoenberger of Crosscheck Management.
CME FedWatch put the chance of an increase on 28 October at 20% after the report, down from 64% a week earlier, according to Yahoo Finance. At one point during the morning, Reuters said, it fell as low as 12%.
What to watch
| Date | Release | Why it matters |
|---|---|---|
| 14 Oct | US consumer prices for September | The first full read on how far energy prices have spread |
| 27–28 Oct | Fed meeting | Futures now lean firmly towards no change |
| 8–9 Dec | Fed meeting, with new projections | In September, officials pencilled in one more increase this year |
Disclosure
This is analysis and opinion, not investment advice.