September Jobs Report Shows Only 29000 Positions Added as Unemployment Rises to 4.2%, Dimming Odds of October Fed Hike

The US economy added just 29,000 jobs in September, a figure well below economist expectations and a sharp deterioration in labor market conditions. The unemployment rate ticked up to 4.2%, and July's payroll count was revised to a net loss of 10,000 jobs, deepening concern about the health of hiring.

Wage growth decelerated from 3.8% year-over-year to 3.0%, nearly a full percentage point of slowdown in under a year, even as labor force growth sits at zero. With core CPI running around 2.3% to 2.4%, some analysts argued the combination left the Federal Reserve with little justification for the rate hike it delivered last month, let alone another one at the October 27-28 meeting.

Market participants moved quickly to reduce bets on an October hike after the report crossed. European equities rebounded following a bond market selloff, as easing rate-hike expectations provided relief. Treasury yields initially retreated on the data before reversing higher. Fed officials, including Chicago Fed President Austan Goolsbee, signaled openness to evidence that inflation is returning to the 2% target, a posture traders interpreted as consistent with a pause. PNC's Amanda Agati said she did not see how the Fed could raise rates in October given the report.