Adding to uncertainty before the Fed’s December 10th meeting, the policy backdrop remains mixed with inflation pressures persisting for lower‑income households even as housing points to disinflation, tariff rollbacks on select foods aiming to ease price pressures, and hiring slowing.
September U.S. non-farm payrolls, the release of which was severely delayed by the U.S. government shutdown, posted a gain of +119k versus the consensus for a +51k gain. This marks the strongest print since April and lifts three month average payrolls to +62k. Revisions were -33k in aggregate, with July’s blockbuster print revised down by -7k; more notably, the August print was revised down by -26k, translating to a decline in payrolls of -4k in the month, lending credence to the concerns which drove the Fed to cut interest rates in both September and October. Average hourly wages also moved higher by +0.2% month-over-month and +3.8% year-over-year, while hours worked were steady at 34.2.
Consistent with this year’s trend, health care hiring continues to drive gains, with +43k jobs added in the month; social assistance hiring remains robust as well, up +14k. Adding to the better-than-expected print was a sharp increase in leisure and hospitality of +47k, likely coincident with the expected uptick in holiday spending. Conversely, transportation and warehousing delivered -25k in job losses for the month, and the ripple effects of earlier efforts to shrink the federal government workforce resulted in a decline of -3k, bringing the cumulative job losses to -97k in 2025. Interestingly, while manufacturing lost -6k, this is markedly better than the prior two months and, coupled with a sharp increase in construction hiring, could point to a potential recovery going into 2026 of the overall goods producing sector.
The unemployment rate rose to 4.4% versus a consensus of 4.3%, driven once again by an increase in the participation rate from 62.3% to 62.4%. The number of employed persons rose by +251k in the month, as the labor force grew by +470k; however, the number of unemployed persons rose by +291k. The increase in labor participation into a low hiring, low firing environment could indicate an increased level of economic strain for U.S. households -- it could also translate to a higher unemployment rate in the coming months. September’s data also points to the necessity of a renewed focus on both the establishment and household surveys, as the disconnect between the two can result in large revisions in payrolls months following the release.
What is clear from the reaction to today’s release is that the Fed is in a tricky position coming into their December 10th meeting. While inflation is still a meaningful concern particularly for lower income households – President Trump announced today the decision to rollback tariffs on coffee, beef, bananas, and orange juice to alleviate upward pressure on food prices – there is evidence, particularly given recent downward pressure in housing prices, that inflation is on a downward trajectory. In addition, the overarching conclusion from primary and secondary labor market data is that hiring is slowing, and the Fed is loathe to sit idle and watch low hiring become fast firing.
However, today’s release, coupled with jobless claims of 220k, likely support the thesis that the economy is not yet close to that inflection point, and, therefore, it is not surprising to see that odds for a rate cut in December have come down modestly to about 40% following the release. In addition, it is important to note that this is the last official jobs data the Fed will receive before the meeting, as a combined October-November payrolls report is slated to drop on December 16th. As a result, the Fed will be forced to rely on secondary and somewhat noisy data to inform its decision, and with Nvidia earnings behind us, the narrative coming out of Fed Chair Jerome Powell’s press conference is all the more important in terms of tone setting for early 2026.
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