The U.S. added just 29,000 jobs in September, a sign that the labor market may not be able to deliver the sizable gains that it did in the past-but doesn't need to in order to keep the unemployment rate low.

The numbers

The jobs number, reported Friday by the Labor Department, fell far short of analysts' expectations for 84,000 jobs. The unemployment rate edged up to 4.2%. That was higher than 4.1% the previous month but still at a historically low level that indicates that the labor market remains generally healthy.

Monthly employment numbers can be volatile, so investors and policymakers tend to focus on the unemployment rate.

Low hire, low fire

The 29,000 number will seem low to anyone who remembers the job gains that routinely topped 200,000 in the years prior to the pandemic-much less the massive job gains that came when the economy reopened from Covid-19.

But the economy doesn't need to generate as many jobs as it used to just to keep the labor market steady. The population is aging, and an immigration clampdown has reduced growth in the supply of workers.

In a positive sign, what is called the labor-force participation rate-the share of people working or looking for work-inched up slightly. "That all speaks to continued strength in the labor market," said Kathy Bostjancic, chief economist at Nationwide.

The job market remains in a low-hire, low-fire era that provides stability but can be frustrating for Americans used to more opportunity. That dynamic has made it harder for newcomers to break into the job market, or for those who have been laid off or seeking new jobs to find new roles.

What this means for the Fed

The September employment report will give Federal Reserve officials little reason to change their underlying view of the economy, and it removes one potential obstacle to holding interest rates steady this month.

The most important development was that the report provided no signs that the labor market is tightening in ways that would add to price pressures. Top Fed officials signaled this week they want more time to assess how inflation trends are unfolding after they raised rates last month, and Friday's report gives them room to wait.

A meaningful drop in the unemployment rate, which Fed officials watch more closely than monthly payroll gains, could have complicated the decision by Chairman Kevin Warsh and his colleagues regarding whether to raise interest rates again this month. Friday's report gave them no such signal.

A reading on consumer prices for September, due Oct. 14, is likely to weigh more heavily on the timing of further rate increases and how far the current tightening runs.

How the market is reacting

Investors cheered the report, and dialed back their expectations for a rate hike this month. Stocks rose and Treasury yields fell.

The report lands amid a broad selloff in the bond market. Treasury yields hit the highest level in 24 years earlier this week before retreating, while mortgage rates have surged above 7%.

A weaker summer

Jobs numbers for both July and August were revised down. Employers shed 10,000 jobs in July, down from a previous estimate of a gain of 21,000. August's job gain was revised to 133,000, from 162,000. Combined, revisions trimmed 60,000 jobs from the previously estimated tally for July and August.

Where jobs were gained-and lost

Healthcare employers added 17,000 jobs, although the pace of hiring slowed compared with the past year. The sector has long been a bright spot in an otherwise slow labor market.

Construction employment, which has been boosted by the data-center boom, rose by 11,000. Manufacturing employment also increased slightly.

Employment fell slightly in the government, information and financial sectors.

What this means for the midterms

Friday's numbers mark the last jobs report before the midterm elections on Nov. 3. Surveys show that voters are feeling increasingly glum about the economy, which often hurts the party in power. Consumer sentiment is near historic lows, according to a University of Michigan survey. Meanwhile, a number of Americans say that jobs are hard to get.

Paycheck pain

Contributing to Americans' frustration: Pay growth for many workers is getting entirely eaten up by inflation.

Average hourly wages rose 3% in September from a year earlier, the slowest rate of increase in several years and lower than the 3.1% economists had predicted.

Consumer prices rose by an annual 3.4% in August, the latest month for which data is available.

The AI impact

Some economists worry about an impending artificial-intelligence job apocalypse, but so far there is no conclusive evidence that automation is killing lots of white-collar positions. Instead, massive spending on data centers has boosted the labor market.

Employers added more than 750,000 AI-related jobs such as data annotator and data-center worker in the U.S. between the beginning of 2023 until late September, according to estimates from LinkedIn. And that isn't counting construction jobs. Electricians and plumbers have seen their hours and income surge.

"There are clear signs of a positive spillover" from data-center spending into the job market, said Ruchir Sharma, U.S. economist at Nomura.

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