> ## Content Index > Fetch the complete content index at: https://www.leadlagreport.com/llms.txt > Use this file to discover other available public pages before exploring further. # The Labor Market Stopped Hiring And Has Not Started Firing - URL: https://www.leadlagreport.com/the-labor-market-stopped-hiring-and-has-not-started-firing/ - Published: 2026-10-15T20:00:00.000Z - Updated: 2026-10-15T20:00:01.000Z - Description: Payrolls rose 29,000 in September, claims sit near 197,000 and wage growth hit its lowest since 2021. The recession signals are missing and the expansion signals are fading. - Author: Michael A. Gayed, CFA - Tags: Macro Observations ## *Today’s Lead-Lag Report post is sponsored by* [*Sparkline*](https://etf.sparklinecapital.com/itan/?utm%5Fsource=substack%5Fleadlag&utm%5Fmedium=email) ![Sparkline Intangible Value ETF (ITAN)](https://storage.ghost.io/c/b8/9e/b89e006c-adc9-4384-b804-e802e23b544e/content/images/2026/09/sparkline_header_clean.png) Looking for a fresh take on value investing? [ITAN](https://etf.sparklinecapital.com/itan/?utm%5Fsource=substack%5Fleadlag&utm%5Fmedium=email) helps investors modernize their U.S. value allocations, providing exposure to innovative, intangible-rich companies at attractive prices. 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All statements and expressions provided in the link are the sole opinion of Sparkline Capital and Lead-Lag Publishing, LLC expressly disclaims any responsibility for action taken in connection with the information provided in the link.* --- # The Labor Market Stopped Hiring And Has Not Started Firing ### *Payrolls rose 29,000 in September, jobless claims sit near 197,000, and wage growth fell to its lowest since 2021\. The usual recession signals are missing, and the usual expansion signals are fading. That is a different kind of slowdown.* **MICHAEL A. GAYED, CFA** ## Key Highlights - Nonfarm payrolls rose 29,000 in September against a forecast of 84,000, and July and August were revised down by a combined 60,000, leaving July at negative 10,000. - Health care and social assistance added 23,000 jobs, which means every other industry combined added only about 6,000. - Initial jobless claims were 197,000 in the week ended October 3, below the 227,500 four-week average a year earlier, and the unemployment rate was 4.2%. - Average hourly earnings rose 3.0% over twelve months, the lowest since May 2021, while job openings of 7.08 million in August were back to levels near February 2020. **September payrolls rose 29,000 while 23,000 of those jobs came from a single sector, health care and social assistance, leaving the rest of the economy roughly flat.**\[1\] The headline miss was large: the consensus expected 84,000 and the actual figure was about a third of that.\[1\]\[2\] But the composition is the more important fact. Outside health care and social assistance the private sector added about 23,000 jobs, and government cut 17,000, which nets to roughly 6,000 for everything else.\[1\] The labor market is not collapsing. It is also no longer broadening. That distinction decides whether the Federal Reserve, which raised rates on September 16 and signaled more, is tightening into strength or into a stall. ## The Anatomy Of A Weak Month The Bureau of Labor Statistics reported that total private payrolls rose 46,000 in September, goods-producing industries added 18,000, and private service-providing industries added 28,000.\[1\] Within services, health care and social assistance contributed 23,000 and leisure and hospitality added 10,000\. On the other side, information fell 10,000, financial activities fell 7,000, professional and business services fell 9,000, and temporary help services fell 10,900.\[1\] Government employment declined by 17,000, which pulled the total down from the private-sector figure to 29,000. Look at what is shrinking. Information, financial activities, and professional and business services are the white-collar core of the economy. Together they lost 26,000 jobs in September. Financial activities employment is down 129,000 from its peak in May 2025, with most of the loss in insurance.\[1\] Temporary help, which often moves ahead of the broader labor market because it is the easiest labor for firms to cut, fell 10,900\. These are the industries where the hiring freeze is concentrated, and they are also the industries whose workers have the highest incomes and spending power. Look at what is growing. Health care, construction, and leisure and hospitality account for most of the gains.\[1\] Health care is a necessity business that grows with demographics regardless of the business cycle. When it supplies almost all of the net job growth, the economy is not generating the cyclical hiring that marks a healthy expansion. ![Monthly change in nonfarm payrolls, January 2025 to September 2026, with a 3-month average of about 51,000](https://storage.ghost.io/c/b8/9e/b89e006c-adc9-4384-b804-e802e23b544e/content/images/2026/10/lab1_payrolls.png) The monthly series, as currently revised, shows how erratic the year has been: 160,000 in January, negative 156,000 in February, 214,000 in March, 148,000 in April, 63,000 in May, 31,000 in June, negative 10,000 in July, 133,000 in August, and 29,000 in September.\[3\] The nine-month total is 612,000, an average of 68,000 a month. The three-month average through September is about 51,000\. In 2025 the same series averaged under 10,000 a month, so the economy is adding jobs faster this year than last.\[3\] But the pace has stepped down since the spring, and each revision has trimmed the story. ## The Quiet Half Of The Picture The reason this is not a recession signal is that the firing side of the ledger remains quiet. Initial jobless claims were 197,000 in the week ended October 3\. The four-week average is 198,000, compared with about 227,500 a year earlier.\[4\] The 2026 low was 189,000 in the week of July 18 and the high was 230,000 at the end of January. Claims are close to the lowest levels of the year. ![Initial jobless claims and the unemployment rate, January 2025 to October 2026, claims near 197,000 and unemployment at 4.2 percent](https://storage.ghost.io/c/b8/9e/b89e006c-adc9-4384-b804-e802e23b544e/content/images/2026/10/lab2_claims.png) The unemployment rate rose to 4.2% in September from 4.1%. That sounds like deterioration, but the Bureau’s own household data tell a more benign story. Household employment rose 406,000, the labor force grew 485,000, and the participation rate increased 0.2 percentage point to 61.8%, its highest since May.\[2\] The unemployment rate rose because more people entered the labor force and not all of them found jobs immediately. A broader gauge that includes discouraged workers and part-timers who want full-time work edged down to 7.6%, its lowest since January 2025.\[2\] The rate has ranged between 4.1% and 4.4% all year.\[5\] Job openings reinforce the point. The Job Openings and Labor Turnover Survey recorded 7.08 million openings in August, down from a peak of 12.30 million in March 2022 but above the 6.92 million of a year earlier and close to the 6.97 million of February 2020.\[6\] The market is not flush with openings, but it is not empty either. Employers are not posting many new positions, and they are not eliminating the ones they have. ![JOLTS job openings, 2019 to August 2026, at 7.08 million, near pre-pandemic levels](https://storage.ghost.io/c/b8/9e/b89e006c-adc9-4384-b804-e802e23b544e/content/images/2026/10/lab3_jolts.png) This is the profile of a labor market that has settled into a low-churn equilibrium. Firms are plausibly not firing because demand has not collapsed and replacing workers is costly. They are not hiring because the outlook is uncertain and the cost of capital is rising. The net result is a stall in the pace of job creation without an increase in job loss. It can last a long time, and it can end in either direction. ## The Wage Squeeze The most important number in the jobs report may not be the payroll figure. Average hourly earnings rose 0.1% in September to $37.81, and the twelve-month increase was 3.0%, the lowest since May 2021\. Wall Street had expected 0.3% for the month and 3.1% for the year.\[1\]\[2\] The pace of wage growth is slowing at the same time that energy prices are pushing up the cost of living: the consensus forecast for September consumer price inflation is 3.6% year over year.\[7\] If that forecast is right, real wages are falling by about 0.6 percentage point a year. This changes the Federal Reserve’s problem. The central bank raised rates on September 16 to 3.75% to 4.00%, and the September minutes said most participants judged another increase would likely be appropriate by year end, because prolonged energy costs could spread to broader prices.\[7\]\[8\] The classic channel for that spread is wages. But wage growth is at a five-year low, and employers are not bidding for workers at a pace that would make a wage-price spiral plausible. Jefferies chief U.S. economist Thomas Simons wrote that the report should be “the nail in the coffin for an October hike.”\[2\] The market agrees for now: the implied odds of a hold on October 27 and 28 rose to 82.8%.\[2\] The wage figures also shape the consumer outlook. A household with falling real income and a stagnant job market cuts discretionary spending. That channel works through the same industries that are shedding workers, which makes it self-reinforcing: weaker white-collar hiring reduces high-income spending, which reduces the demand that supports hiring. ## The Income Arithmetic Put the hiring figures and the wage figures together and you get a rough picture of household income. Total nonfarm employment stood at 159.04 million in September, up about 496,000, or 0.31%, from a year earlier.\[3\] Average hourly earnings are up 3.0% over the same period.\[1\] Ignoring changes in hours worked, that implies the aggregate wage bill is growing at roughly 3.3% a year. Against a consensus inflation forecast of 3.6%, the purchasing power of total labor income is slipping, not growing.\[7\] This is an approximation, and hours and composition matter, but the direction is hard to dispute. The consumer has been the engine of this expansion, and the engine runs on income. A labor market that adds jobs at a three-tenths of a percent annual pace with wage growth below inflation does not produce the real income gains that sustain spending growth. Households can bridge the gap with savings or credit for a while. They cannot do it indefinitely, and the fact that gasoline costs 39% more than a year ago narrows the room to maneuver. ## Reading The Revisions The revisions deserve a separate comment because they change the shape of the story. Before the September report, the August gain of 162,000 looked like a rebound that might restart the spring momentum. After the report, August stands at 133,000 and July at negative 10,000, with the two months together 60,000 lower than first reported.\[1\] Jefferies’ Thomas Simons said August “was nothing more than a rebound from very weak hiring in June and July.”\[2\] The pattern is of one strong month sandwiched between weak ones, which averages to about 51,000 jobs a month over the last three months rather than the 133,000 that August alone suggested. That has implications for how to read future reports. The initial print carries a margin of error large enough that a single month tells you little. The three-month average and the revision trend tell you more, and both currently point to a slower labor market than the spring data implied. ## The Bond Market Disagrees The most puzzling feature of the week is that long-term yields did not fall in response to a weak report. The 10-year Treasury yield closed at 5.22% on October 8, close to its 2026 closing high of 5.31% on October 5, and well above the 3.97% low of February 27.\[9\] A soft labor market usually pulls yields lower. This time it did not, because the bond market is pricing something other than the labor market. That disconnect is the real finding. The labor market is signaling a slowdown, the bond market is signaling inflation risk, and the central bank has said it is inclined to keep tightening. All three cannot be right for long. If the labor data are correct, yields eventually fall. If the bond market is correct, the labor market will eventually have to absorb higher rates, and a stalled labor market with no layoffs is the kind most vulnerable to a tightening cycle, because it has no momentum to resist. ## What Would Tip It Three data series will say which direction this goes. The first is initial claims. A move sustainably above 230,000, the high of the year, would be the first evidence that firing has started. The second is the unemployment rate. If it rises above 4.4% without a matching increase in participation, the benign explanation for the September uptick would no longer hold. The third is the revision pattern: July and August were each revised down, and further downward revisions to recent months would imply that the underlying trend is weaker than the current figures say.\[1\] It also helps to separate what the labor market can tell the Fed from what it cannot. It can show whether demand is cooling, which it is, and whether workers have the leverage to demand pay that outruns prices, which they do not. It cannot show whether energy costs will spread into other prices through channels that do not run through wages, such as freight and fuel surcharges. That is the part of the Fed’s worry that this report leaves untouched, and it is why the committee can look at 29,000 jobs and still say that another increase is likely by year end.\[7\] The report weakens the case for an October move. It does not settle the case for December. For now, the correct description is a labor market that has stopped hiring and not started firing. It is an unusual combination, and history is not especially helpful in predicting how it resolves, since slowdowns are often preceded by a rise in layoffs. This one began with a quiet end to new jobs. The question for the Fed is whether it can tighten into that quiet and keep it quiet. The question for everyone else is whether a labor market with no cushion and no layoffs can absorb a 5% Treasury yield without breaking. **Few understand this.** — — — ## Notes - Employment Situation, September 2026: payrolls +29,000, private +46,000, government negative 17,000, industry detail, revisions of negative 31,000 (July) and negative 29,000 (August), average hourly earnings $37.81, financial activities down 129,000 since May 2025: [Bureau of Labor Statistics](https://www.bls.gov/news.release/archives/empsit%5F10022026.htm?ref=leadlagreport.com). - Payrolls vs 84,000 forecast, unemployment 4.2%, household employment +406,000, labor force +485,000, participation 61.8%, broader unemployment measure 7.6%, wage growth expectations, CME FedWatch hold odds of 82.8%, Thomas Simons quotation: [CNBC, October 2, 2026](https://www.cnbc.com/2026/10/02/jobs-report-september-2026.html?ref=leadlagreport.com). - Monthly nonfarm payroll change, as currently revised, computed by the author from the level series: [FRED series PAYEMS](https://fred.stlouisfed.org/series/PAYEMS?ref=leadlagreport.com). - Initial jobless claims, 197,000 for the week ended October 3, 2026, four-week average and year-earlier comparison computed by the author: [FRED series ICSA](https://fred.stlouisfed.org/series/ICSA?ref=leadlagreport.com). - Civilian unemployment rate, 2026 range 4.1% to 4.4%: [FRED series UNRATE](https://fred.stlouisfed.org/series/UNRATE?ref=leadlagreport.com). - Job openings, total nonfarm: 7.079 million in August 2026, 6.919 million a year earlier, 12.301 million in March 2022, 6.966 million in February 2020: [FRED series JTSJOL (BLS JOLTS)](https://fred.stlouisfed.org/series/JTSJOL?ref=leadlagreport.com). - September CPI forecast of 3.6% year over year (Bloomberg and Reuters consensus) and September minutes language on a further increase by year end: [StockTitan, October 12, 2026](https://www.stocktitan.net/articles/september-2026-cpi-inflation-report?ref=leadlagreport.com). - Fed target range raised to 3.75% to 4.00% on September 16, 2026: [Federal Reserve FOMC statement](https://www.federalreserve.gov/newsevents/pressreleases/monetary20260916a.htm). - 10-year Treasury constant maturity yield, 5.22% on October 8, 5.31% on October 5, 3.97% on February 27: [FRED series DGS10](https://fred.stlouisfed.org/series/DGS10?ref=leadlagreport.com). *The Lead-Lag Report is provided by Lead-Lag Publishing, LLC. 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