September 2026 Jobs Report: Labor demand continued to slow

Key findings

• U.S. employers added 29,000 jobs in September, while gains in August and July were revised down by a combined 60,000.
• The unemployment rate rose slightly to 4.2% from 4.1% as labor force participation outpaced employment growth.
• Wage growth continued to moderate, with average hourly earnings rising 3.0% year over year.

What happened: The September employment report by the Bureau of Labor Statistics indicates that labor demand continued to cool with a slight increase in the unemployment rate.

Nonfarm payroll employment increased 29,000 in September, below financial market expectations, as government employment fell by 17,000. Private employers added 46,000 jobs in September. 

Construction employment rose steadily by 11,000 as investment in data centers remained robust. The manufacturing sector reported a 9,000 gain. Labor-intensive health care and social assistance services added 23,000 jobs. 

However, other key industries such as information (-10,000), professional services (-9,000), and financial activities (-7,000) showed net losses. Employment in temporary help services, a leading indicator for overall labor demand, fell by 10,900.

The September report indicates a slowdown in the underlying pace of hiring. The three-month moving average of nonfarm payroll gains was 51,000 this September, compared with 179,000 three years ago when the Fed started cutting interest rates. However, this isn’t necessarily alarming, considering slowing labor force growth.

For now, the debate is on when the Fed hikes again, not whether. Core inflation has been running above target for more than five years. Global energy shocks have been persistent, raising pressure on prices of non-energy products. The stable labor market gives the Fed extra runway to bring inflation down to target more gracefully.

Both layoff and hiring rates remain subdued, indicating low job mobility, according to the latest BLS Job Openings and Labor Turnover Survey (JOLTS). Meanwhile, wage growth is slowing, with average hourly earnings rising 3.0% year over year in September, compared with 3.8% a year ago.

Why it matters for housing: For home buyers, the current labor market is a double-edged sword. Stable employment helps them stay put in their current home, but fewer job opportunities and cooling wage growth could delay their decision to move.

The recent jump in mortgage rates is hitting an already slow housing market. Growing uncertainty about future job prospects and income growth could make buyers more cautious. 

Combined with affordability headwinds, we continue to expect a soft close to 2026. That said, for buyers who can navigate the current market, the silver lining is increased inventory and price cuts.