What the September 2025 jobs report reveals about the US labor market and economic outlook.
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We finally have the jobs report for September 2025, delayed by nearly 7 weeks because of the federal government shutdown. In some ways, it is already obsolete, as we are almost through the end of November.
Still, the report offers us some information on where the labor market stood in the early fall, filling in some missing data that we badly needed to see.
At first glance, the report seems positive, as 119,000 payroll jobs were added that month; this is the largest payroll increase we’ve seen in 6 months and one of the largest of 2025. But a closer look reveals ongoing weakness in the job market.
First, almost all of the payroll growth is concentrated in two sectors: health care and social assistance (up 57,000) and leisure and hospitality (up 47,000). In other sectors, hiring mostly remained flat, as it has been for much of the year; and employment in manufacturing and the federal government continued to decline, reflecting the ongoing effects of tariffs and cuts by the Trump administration. Employment in professional and business services fell by 20,000, likely reflecting cuts in research funding and other federal grants and contracts.
Second, the already low payroll growth rates of July and August were both adjusted downward, to 72,000 and -4,000 respectively. Over the past 3 months, payroll growth has averaged 62,000 – with much of it concentrated in health care and assistance. Employer hiring continues to be very sluggish.
Third, the unemployment rate crept up to 4.4 percent in September. More workers reported employment, but the labor force rose by a larger number. New hiring was not sufficient to absorb the numbers of workers entering the labor force.
Fourth, among the unemployed, the largest increase in the reason for unemployment occurred among job losers, whose ranks rose by 88,000. Losses in the tech sector have gotten the most attention recently. If job losses continue to grow, the odds of a full-blown recession will rise.
But there is little reason to believe that this picture will change dramatically in the near future. Trump’s tariffs continue to rise and fall very frequently, making it harder for businesses to adjust their hiring and sales models. The rise of Artificial Intelligence (AI) adds to the uncertainty, as businesses grapple with where and how they can implement this new technology in a productive manner. AI most likely reduces hiring among recent college graduates, whose unemployment rates and durations have risen considerably. Finally, immigrants are leaving the labor force in large numbers, making it harder to hire in any sector that has come to depend on them. New immigrants are not coming to the US, even legally, for fear of harassment by the federal government.
How the Federal Reserve will react to all of this remains to be seen. Inflation has mostly averaged about 3 percent in recent months, which is well above the Fed’s target of 2 percent; and the measured rate is likely to rise further in the coming months, as firms raise prices to cover the effects of higher tariffs on their costs. With Stephen Miran replacing Adriana Kugler as a governor at the Fed, President Trump now has 3 governors actively pushing for larger interest rate reductions, while the others fear higher inflation. Trump will continue to press for lower rates, regardless of the consequences. And confidence in the Fed’s independence will continue to fall.
The jobs report for October will not be released, and the November numbers will be available on December 16. Perhaps a bit more clarity on the labor market will emerge at that time.
