Labor Market Overview

NOTE: Data for October 2025 were not collected due to the federal government shutdown.

At a Glance

Employment

The Bureau of Labor Statistics (BLS) reported job growth of 29,000 jobs in September. The job gains in July and August were revised downward, returning July to a month with job loss. With these changes, the employment outlook appears better than it did two months ago but hopes of August’s job performance signifying an end to the cooling hiring environment are on hold after little growth in September. Real private-sector wages have moved little over the last three months.

Unemployment

The U-6 unemployment rate, which includes discouraged, underemployed, and unemployed workers in the country, fell to 7.6% in September. The U-3 unemployment rate, which indicates only the number of unemployed people actively seeking a job, ticked up to 4.2%. The labor force participation rate (LFPR) had been in steep decline since November 2025 but has improved for two consecutive months, currently standing at 61.8%. Even though the unemployment rate increased, the larger increase in the LFPR is a positive sign that the labor market is attracting new participants without displacing those already employed.

New Developments

September’s industry results were unusual because some of the more cyclical, goods-oriented portions of the economy held up better than many large service industries. Goods-producing employment increased by 18,000, including gains of 11,000 in Construction and 9,000 in Manufacturing. Those increases are meaningful because goods-producing industries account for a much smaller share of total employment than services. Manufacturing has now added 72,000 jobs since its recent low in December 2025, with September gains concentrated in Plastics and Rubber Products and Machinery Manufacturing. Distribution-related industries also remained comparatively resilient. Transportation and Warehousing added 7,600 jobs, Wholesale Trade gained 5,000, and Retail Trade increased by 5,800. By contrast, several service categories contracted, including Information (-10,000), Professional and Business Services (-9,000), and Financial Activities (-7,000), while Government employment fell by 17,000. This pattern does not necessarily indicate a broad industrial resurgence—the BLS characterized changes in all major industries as relatively small—but it suggests that September’s weakness was concentrated more heavily in office-based and government employment than in construction, manufacturing, and the industries responsible for moving and distributing goods.

The rise in unemployment from 4.1% to 4.2% is less concerning when viewed alongside the much stronger expansion of the labor force. The civilian labor force increased by 485,000 in September, while household employment rose by 406,000. Consequently, the number of unemployed people increased by only 78,000. The labor force participation rate climbed another 0.2 percentage point to 61.8%, following a similar increase in August, and the employment-to-population ratio edged higher to 59.2%. In this case, therefore, the increase in unemployment partly reflects more people entering or returning to the labor market rather than a substantial loss of employment. That distinction is important: an economy that can absorb most new labor-force entrants is in a stronger position than one in which unemployment rises because existing workers are losing jobs. There were also signs that available labor supply broadened beyond the headline participation measure. The number of people marginally attached to the labor force declined by 236,000 to 1.5 million. Nevertheless, longer-term unemployment remains an area of concern, with 1.9 million people unemployed for at least 27 weeks, accounting for 27.3% of all unemployed workers.

A Deeper Look

September creates a more complicated decision for the Federal Reserve following its September 16 increase in the federal funds target range to 3.75%–4.00%. The Fed justified that move in part by stating that inflation remained elevated, and its September projections showed a median 2026 PCE (Personal Consumption Expenditures) inflation forecast of 3.7%, still well above the Committee’s 2% longer-run objective. The employment report, however, provides less evidence that additional restraint is immediately necessary from the labor-market side. Payrolls increased by only 29,000, July and August employment was revised downward by a combined 60,000, and nominal average hourly earnings rose just 0.1% during September and 3.0% over the past year. These figures point toward moderating labor demand and wage pressure. At the same time, the increase in participation and household employment argues against interpreting September as a sudden deterioration in labor conditions. The report therefore gives policymakers reasons to be cautious in either direction. The Federal Reserve’s September projections had already indicated considerable support for maintaining restrictive policy through year-end. Incoming inflation data, rather than the unemployment rate alone, will play a much more important role in determining whether policymakers see another rate increase as warranted at the October 27–28 or December 8–9 meetings.

September’s payroll report reveals much beyond the total employment estimate. July employment was revised from a gain of 21,000 to a loss of 10,000, while August was reduced from 162,000 to 133,000, subtracting 60,000 jobs from the previously reported two-month total. September’s 29,000 increase also fell below the average monthly gain of 45,000 over the preceding year, confirming that hiring has slowed substantially even though outright job losses remain limited. Wage and hours data similarly point toward slower labor demand: nominal average hourly earnings increased 3.0% from a year earlier, while the average private-sector workweek held at 34.4 hours. Combined with rising labor-force participation, September depicts a labor market that is becoming less tight without yet showing the broad layoffs normally associated with a pronounced downturn. Whether firms continue absorbing additional workers will be an important test of labor-market resilience during the final quarter of 2026.

Geographic Solutions derives its employment forecast and unemployment rate forecast from internal data on the number of job openings, searchers, and employment and unemployment applications filed on Geographic Solutions' state client sites. The forecast uses unemployment claims data from the U.S. Department of Labor (USDOL).

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