US economy added 263,000 jobs in September, unemployment falls to 3.5%

The Labor Department released new unemployment numbers for the month of September, showing that job growth fell short of expectations despite hopes that a rate jump from the Federal Reserve would shore up a struggling economy.

The unemployment rate landed at 3.5% versus the forecast of 3.7%. The measure, which includes discouraged workers and those holding part-time jobs due to economic reasons, declined to 6.7% from 7%.

Here are a few of the other takeaways from the September report:

• Nonfarm payrolls increased by 263,000, missing the Dow Jones estimate of 275,000. That number is tied for the lowest monthly increase since April 2021.  
• The labor force participation rate dropped to 62.3%, and the labor force decreased by 57,000.   
• The leisure and hospitality sectors led the gains for the month, with an increase of 83,000. Healthcare came in second with 60,000 added. Business and professional services, manufacturing, construction, and wholesale trade also increased.   
• Government jobs dropped by 25,000 and were likely one of the most significant contributors to the disappointing numbers. Financial activities, transportation, and warehousing also lost jobs.   
• Average hourly earnings rose 0.3% on the month and 5% from a year earlier.  

Analysts say the jobs report makes another rate increase from the Federal Reserve extremely likely. Federal Reserve Chairman Jerome Powell has said he expects the rate hikes to inflict “some pain” on the economy and has offered forecasts of an unemployment rate as high as 4.4% in 2023.

“This puts the nail in the coffin for another 75 [basis point rate increase] in November,” said Jeffrey Roach, Chief Economist at LPL Financial.

Traders gave an 82% chance of another 0.75 percentage point increase in November and expect another half-point increase in December. That would leave the federal funds rate in a range between 4.25%-4.5%.

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