WASHINGTON (Reuters) -U.S. employment growth accelerated in September, but the labor market remained sluggish and failed to keep pace with new job-seekers as employers dealt with fallout from import tariffs and integrated artificial intelligence into some positions.
The jobless rate rose to 4.4%, its highest level in four years, from 4.3% in August, the Labor Department said in its closely watched employment report on Thursday. The August payrolls data was revised to show employers shedding jobs for the second time this year, underscoring the labor market softness.
Other data from the Labor Department showed layoffs stayed low in mid-November, suggesting the job market remained stuck in what economists and policymakers call a “no-hire, no-fire” state.
Some economists viewed the rise in the jobless rate as bolstering the argument for another Federal Reserve interest rate cut next month, while others said the better-than-expected job growth suggested the U.S. central bank should stay pat, especially since policymakers would not get another employment report before the December 9-10 meeting.
“The upside surprise in this report is positive, but it likely dampens prospects for a rate cut in December,” said Olu Sonola, head of U.S. economic research at Fitch Ratings. “The slight uptick in the unemployment rate complicates the narrative – pick your poison, stronger job growth or rising unemployment, because the good news may not be as good after all.”
Nonfarm payrolls increased by 119,000 jobs after a downwardly revised drop of 4,000 in August, the Labor Department’s Bureau of Labor Statistics said. Economists polled by Reuters had forecast 50,000 jobs would be added after a previously reported gain of 22,000 in August. The survey of establishments also showed job growth in July was downgraded by 7,000 to 72,000 positions.
The report was initially due on October 3, but was delayed by the shutdown of the federal government. The 43-day shutdown, the longest in U.S. history, forced the BLS to cancel the release of October’s report as no data was collected for the household survey to calculate the unemployment rate for that month. October nonfarm payrolls will instead be combined with November’s employment report now due on December 16, the BLS said.
The delay, however, boosted the establishment survey collection rate to a higher-than-usual 80.2% as businesses self-reported electronically during the shutdown, the BLS said. Low collection rates have accounted for big revisions to payrolls data.
Stocks on Wall Street were trading lower. The dollar was steady against a basket of currencies. U.S. Treasury yields mostly fell.
Job gains in September were partially flattered by difficulties adjusting for workers leaving their summer jobs, resulting in higher payroll counts in the leisure and hospitality industry as well as retail industry.
The healthcare sector continued to lead employment growth, adding 43,000 jobs in September, mostly in ambulatory services and at hospitals. Employment at restaurants and bars increased by 37,000 jobs, with overall leisure and hospitality payrolls rising by 47,000. Retailers added 13,900 positions.
But the transportation and warehousing industry lost more than 25,000 jobs, while manufacturing shed a further 6,000 positions. Professional and business services payrolls decreased, with temporary help services accounting for the bulk of the drop.
Federal government employment dropped by another 3,000 jobs, bringing the total losses since January to 97,000. That number is expected to surge as tens of thousands of workers who took buyouts dropped off government payrolls at the end of September.
MEDIAN DURATION OF UNEMPLOYMENT RISES
The labor market has lost significant momentum this year, as evidenced by sharp downward revisions to nonfarm payroll counts. Economists and policymakers blame the slowdown on reduced supply and demand for workers.
Others blamed the Trump administration’s trade policy for creating an uncertain economic environment that had hamstrung the ability of businesses, especially small enterprises, to hire. Heading into the economic data blackout, the BLS had estimated that about 911,000 fewer jobs were created in the 12 months through March than previously reported.
A reduction in immigration that started during the final year of former President Joe Biden’s term and has accelerated since President Donald Trump’s return to the White House this year has depleted labor supply.
Economists estimate the economy needs to create less than 100,000 jobs per month to keep up with growth in the working-age population, though the rise in the unemployment rate in August and September suggests the break-even rate could be higher.
“The unemployment rate has trended higher, but for the ‘right’ reasons because labor force participation is rising even faster than the solid gains in employment,” said Stephen Stanley, chief U.S. economist at Santander U.S. Capital Markets.
“This is very far from the results one would expect if the labor market were spiraling downward.”
The household survey from which the unemployment rate is derived showed 470,000 people entered the labor force in September, but household employment only increased by 251,000. There has been a steady rise in the number of people who have permanently lost their jobs, which persisted in September.
Fewer people reported working part-time for economic reasons, but many were holding more than one job.
Though there were a drop in the number of those experiencing long bouts of unemployment, the ranks of people out of work for up to 26 weeks swelled. That change pushed the median duration of joblessness to 10.0 weeks from 9.8 weeks in August.
The rising integration of artificial intelligence is also eroding demand for labor, with most of the hit landing on entry-level positions, and locking recent college graduates out of work. Economists said AI was fueling jobless economic growth.
The unemployment rate for college graduates increased to 2.8% from 2.7% in August. Wages continued to grow at a brisk clip, advancing by 3.8% in the 12 months through September, matching the gain in August. This trend should help underpin a moderate pace of consumer spending and keep the economy afloat.
“These changes complicate traditional interpretations of job numbers, but also point toward a labor market undergoing gradual, not chaotic, transformation,” said Sung Won Sohn, a finance and economics professor at Loyola Marymount University. “The key question for the year ahead is whether the economy can maintain this delicate equilibrium.”
(Reporting by Lucia Mutikani; Editing by Chizu Nomiyama, Andrea Ricci and Paul Simao)
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