To The Moon

U.S. September Nonfarm Payrolls Rise Only 29,000; Market No Longer Pricing in Fed Rate Hike This Year

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The U.S. economy added just 29,000 nonfarm jobs in September, far below the 90,000 expected by markets, while the unemployment rate ticked up to 4.2%. August figures were also revised down from 162,000 to 133,000. Following the release, market expectations for an October Fed rate hike fell from 22% to 17%, with the cumulative year-end hiking premium shrinking to roughly 21 basis points—traders no longer fully pricing in another rate increase this year. Economists broadly attribute the unusually weak data to distortions in seasonal adjustment factors rather than a genuine deterioration in the labor market. Average hourly earnings rose just 0.1% month-over-month, with the annual pace slowing to 3.0%, suggesting limited wage inflation pressure. The labor market is characterized by both low layoffs and low hiring, with initial jobless claims still near a 57-year low. Rising energy prices, supply chain strains, and tariff frictions pose downside risks to the employment outlook.

The U.S. Department of Labor released its latest employment report on the 2nd, showing that nonfarm payrolls increased by only 29,000 in September, far below the 90,000 expected by markets, while the unemployment rate edged up to 4.2% from 4.1% in August. The unexpectedly weak data has fundamentally shifted rate market positioning, with traders no longer fully pricing in another Federal Reserve rate hike this year.

Following the release, interest rate swap contracts tied to Fed meeting dates showed market expectations for an October rate hike falling to around 17% from roughly 22% the previous day, with the cumulative hiking premium across the two remaining meetings this year shrinking to approximately 21 basis points. The CME FedWatch tool showed the probability of holding rates steady in October surging to 86% from 76% the prior day.

The Labor Department also significantly revised down employment figures for the prior two months. August nonfarm payroll gains were revised from the initially reported 162,000 to 133,000, with July and August combined revised down by 60,000. The three-month average of job gains consequently fell to roughly 50,000, down from approximately 70,000 previously.

Seasonal Factors Remain the Key Variable

Economists broadly believe the unusual weakness in September's employment data likely stems primarily from distortions in seasonal adjustment factors rather than a genuine shift in labor market conditions. This year's Labor Day holiday fell at the end of the month, and historical data shows that when the holiday lands at a similar point in the calendar, seasonally adjusted September job growth tends to be weak.

Barclays had previously noted that the initial August reading of 162,000 likely overstated actual hiring because the seasonal adjustment model amplified employment gains. With September data now incorporated, the Bureau of Labor Statistics recalculated seasonal factors, and some of the job gains previously attributed to August were revised away.

By industry composition, September's weakness was concentrated in government, information services, professional and business services, and financial activities. Information services shed 10,000 jobs, professional and business services lost 9,000, and financial activities declined by 7,000. Meanwhile, healthcare, construction, and manufacturing still posted net job gains, indicating that labor demand in certain parts of the real economy remains stable.

Low Layoffs and Low Hiring Coexist

Notably, the labor market has not simultaneously experienced a significant wave of layoffs. For the week ending September 26, initial jobless claims totaled just 197,000, near a 57-year low. Outplacement firm Challenger, Gray & Christmas reported that U.S. companies announced 43,281 job cuts in September, down 18% from August and down 20% year-over-year.

However, companies have not meaningfully expanded hiring either. Challenger data showed that companies announced 90,787 hiring plans in September—a notable increase from August but still 23% below the same period last year and the lowest September level since 2011. Andy Challenger, the firm's chief revenue officer, noted that companies are in a "wait-and-see phase," facing pressures from rising energy costs, uncertainty surrounding the Iran conflict, the potential for Fed rate hikes to increase hiring costs, and rising healthcare expenses.

This leaves the current labor market characterized by "low layoffs, low hiring": companies are more cautious about expanding headcount, but most have not meaningfully accelerated job cuts either.

Wage Growth Becomes the Policy Focus

For the Federal Reserve, the wage growth figures in this report may carry more policy significance than the 29,000 nonfarm payroll number itself. Average hourly earnings rose just 0.1% month-over-month in September, with the annual pace slowing to 3.0%, further indicating that the labor market is not currently generating meaningful wage inflation pressure.

Fed officials have repeatedly stated that the labor market is not currently a primary source of inflation. The latest wage data reinforces that assessment. New York Fed President John Williams has previously said there is "no urgency" for the next rate hike, and Fed Vice Chair Philip Jefferson has also indicated that policymakers may need more time to observe economic data.

The Fed raised the federal funds rate target range by 25 basis points last month to 3.75%–4.00%, its first rate hike in three years. But after recent inflation data came in below expectations, multiple officials have signaled there is no need to rush into another move at the October meeting.

Seema Shah, chief global strategist at Principal Asset Management, said: "The data suggests patience is needed, not panic. The Fed would need to see inflation reaccelerate, not just resilient growth, to hike again this year."

Market Reaction and Risk Outlook

Financial markets reacted swiftly to the jobs data. Two-year U.S. Treasury yields fell roughly 10 basis points on the day to 4.69%. S&P 500 futures rose 0.8%, while Nasdaq 100 futures gained 1.1%. In early U.S. trading, the Dow rose more than 300 points, the Philadelphia Semiconductor Index climbed 2.5%, and TSMC's ADR advanced 1.2%. Spot gold briefly spiked $40 higher (approximately NT$1,300), while the dollar index slipped.

Economists remain cautious about the outlook for coming quarters. Energy price increases and supply chain strains stemming from the U.S.-Israel conflict with Iran are expected to begin exerting a material impact on the labor market from late this year through 2027. Diesel prices have already hit record highs, and potential pass-through pressures are gradually spreading beyond transportation and agriculture into other sectors.

Additionally, ongoing tariff frictions continue to worry businesses. A survey released by the Institute for Supply Management (ISM) showed manufacturers' concerns about the trade dispute with Canada are intensifying, which could further dampen companies' willingness to expand production and hiring.

While the unemployment rate rose to 4.2%, it remains in a historically low range. The U.S. unemployment rate has held at or below 4.5% since October 2021. At the same time, U.S. labor supply growth has clearly slowed. The ongoing retirement of baby boomers, combined with the Trump administration's tighter immigration policies, means fewer new workers are entering the labor force—implying that even if the pace of job creation slows, the unemployment rate may not necessarily rise quickly.

Economists estimate that, accounting for rising retirements and reduced immigration, the U.S. currently needs to add roughly 50,000 to 80,000 jobs per month just to keep pace with working-age population growth. September's 29,000 job gain is clearly below that threshold.