EL7 Research · Macroeconomics
2 October 2026 · Prices as of 16:05 GMT
Why US unemployment rose to 4.2%: just 29 thousand jobs, but no rise in layoffs
The US economy added 29 thousand jobs in September against expectations of 90 thousand, and unemployment rose to 4.2%, but the increase came from people entering or re-entering the labour market, not layoffs, while annual wage growth slowed to its lowest rate since May 2021. We analyse the report item by item, compare it with our published forecast, and assess market moves and changes in pricing for the Federal Reserve's 28 October decision.
+29
Thousand new jobs in September, against a consensus of 90 thousand
−60
Thousand jobs, net revision to July and August
4.175%
Unemployment rate before rounding; published rate 4.2%
21.6%
Probability of a rate rise on 28 October, versus 64.2% a week earlier
Executive summary
- The US economy added 29 thousand jobs in September, against consensus estimates of 90 thousand, reflecting analysts' combined forecasts. The US Bureau of Labor Statistics (Bureau of Labor Statistics (BLS)) released the figure on Friday 2 October 2026 in its nonfarm payrolls report (Nonfarm Payrolls (NFP)), the monthly count of jobs outside agriculture. The same report revised July and August down by a combined 60 thousand jobs, bringing the three-month average down to 51 thousand. The bureau described employment as “little changed”, meaning the change falls within the survey's statistical margin of error.
- New jobs came from two sources that do not follow the economic cycle. The private sector added 46 thousand jobs, including 33.8 thousand in healthcare and restaurants, or 73%. The remainder, which we call the cyclical private sector, added just 12.2 thousand jobs. Government employment fell by 17 thousand.
- The unemployment rate, the share of the labour force without work, rose to 4.2% from 4.1%, but layoffs were not the cause. The unrounded rate was 4.175%. The number of unemployed people entering the labour market for the first time or returning to it rose by 268 thousand, while the number who had lost their jobs fell by 45 thousand. The labour force participation rate (Labor Force Participation Rate), the share of the population working or looking for work, rose to 61.8%.
- Annual wage growth slowed to its lowest rate since May 2021. Average hourly earnings, the average amount a worker earns per hour, stood at 37.81 dollars, up 0.1% over the month and 3.0% over the year.
- Before the report, we forecast 70 thousand jobs; the figure came in at 29 thousand, within our published range of 15 thousand to 125 thousand. All three of our directional calls were borne out: unemployment at 4.2%, a downward revision to the previous two months, and a below-consensus figure. Our wage forecast did not materialise, nor did our forecasts for three of the four components underpinning our headline figure.
- Markets responded to the figure in the first half-hour, then reversed most of their moves. The euro rose 0.25% and gold 0.76% in the first thirty minutes. By 16:00 GMT, gold was 1.38% below its pre-release price, and the ten-year Treasury yield was above its pre-report level. The Nasdaq 100 index reached an all-time intraday high of 31,017.13 points.
- The market postponed a rate rise; it did not rule one out. The FedWatch tool from CME (CME FedWatch Tool), which derives rate-decision probabilities from futures prices (Futures), assigned a 21.6% probability to a rate rise on 28 October, versus 24.4% the previous day and 64.2% a week earlier. Meanwhile, the probability of at least one rise by the 9 December meeting increased to 84.8% from 79.7%.
