September Jobs Report: Job Market Slows Gracefully

The latest jobs numbers are out from the U.S. Bureau of Labor Statistics. What do they mean for job seekers, employers and investors? Here’s a quick take from Glassdoor Senior Economist Daniel Zhao.

The job market is slowing modestly but still moving forward at a healthy clip. Today’s jobs report from the Bureau of Labor Statistics shows the job market added 263,000 jobs, which is down modestly from 315,000 added in August. The unemployment rate fell back to 3.5 percent, an encouraging move after a surprise jump in August. After the latest JOLTS report showed a steep drop in job openings and today’s jobs report showed modest slowing, the evidence is pointing clearly to a cooling job market. As the job market slows, but doesn’t stall, the attention shifts back to inflation, questioning whether this slowing job market will significantly cool inflation.

Payroll Growth Decelerates to Slowest Pace Since April 2021

Payroll employment grew by only 263,000 in September, tying the slowest pace since April 2021 and moderately slower than the pace in August (+315,000 jobs added). This slowdown is expected as the Fed tightens monetary policy and the broader economy slows. And the pace of jobs growth we’re seeing now still exceeds the pre-pandemic level when we were averaging less than 200,000 jobs added monthly in 2018 and 2019.

Service industries led job gains in September with significant growth in leisure and hospitality (+83,000), health care and social assistance (+75,400), and professional and business services (+46,000). Retail (-1,100) and transportation & warehousing (-7,900) did see modest seasonally adjusted job losses even as holiday hiring starts.

Unemployment Rate Falls Back

The unemployment rate fell back to 3.5 percent after a surprise jump to 3.7 percent in August. The rise in the unemployment rate in August was mitigated by a healthy increase in the labor force participation rate, and the drop back in September was actually accompanied by a slight decrease in labor force participation rate as well. The Black unemployment rate fell to 5.8 percent in September, after several months of increases, though it still has not hit pre-pandemic lows.

Wage Growth Decelerates Again

Year-over-year growth in average hourly earnings slowed to 5.0 percent in September, down modestly from 5.2 percent in August. The slowing job market matters to the Fed inasmuch as it results in lower wage growth and that results in lower inflation. The slowing job growth is an encouraging sign for the Fed, though they will need to see evidence that inflation is meaningfully slower before pivoting back to softer monetary policy.

Conclusion

The Fed is tapping the brakes of monetary policy and today’s jobs report shows a job market that is slowing “in the right way” in the Fed’s eyes. A soft landing is not off the table if the job market continues to slow gracefully and, crucially, inflation falls too. The job market is doing its part for a soft landing, keeping job gains chugging along and moderating wage gains while suppressing any rise in unemployment. The key to a soft landing now rests with the trajectory for inflation.

More Insights

Payroll employment grew by 263,000 in September, tying the slowest rate of growth since April 2021. However, that's still well above pre-pandemic levels when jobs growth was averaging less than 200,000 a month.

Job gains were mixed by industry this month. Service industries led job gains though some sectors saw job losses. Some notable smaller industries including parts of the health care sector that saw significant job gains: physicians offices (+10,200), home health care (+10,600) and hospitals (+27,500).

The slowdown in retail and transportation & warehousing (particularly, truck transportation which lost 11,400 jobs) are notable as we head into the holiday season.

Government job losses were primarily concentrated in state government education (-7,100) and local government education (-21,700), but this may be due to difficulty seasonally adjusting data at the start of the school year, which has been particularly difficult in the last few years due to the pandemic.

Education & health services are now above pre-pandemic employment levels as of September. The remaining shortfalls are primarily in leisure & hospitality and government (which includes state & local government education).

Average hourly earnings growth fell to 5.0 percent year-over-year in September, the slowest since December 2021. That's a sign the Fed is looking for—that slowing labor market is moderating wage growth. Though ultimately they care about whether that's translating into lower inflation overall.

The unemployment rate fell back to 3.5 percent in September, after the surprise jump in August. The jump in August was in part driven by an encouraging rise in labor force participation, which unfortunately partially reversed in September.

Labor force participation fell slightly to 62.3 percent in Sep. The aging population means that the labor force participation rate is unlikely to return to pre-pandemic levels in the near-term, especially if the labor market slows.

However, adjusting for age shows a more improved labor force participation picture. Prime-age labor force participation did step back to 82.7 percent in September, though it's still trending upwards and is within striking distance of pre-pandemic levels. Americans aged 25-54, by-and-large, are looking for work or already working.

The Black unemployment rate fell to 5.8 percent in September, tying the lowest level reached since the pandemic began and reversing several months of increases. This was also accompanied by a rise in Black labor force participation to 62.1 percent.