Labor Market Update: September 2026

While modest 29k job growth, slowing average hourly earnings to 3.0%YoY, and a slight uptick in the unemployment rate to 4.2% in September was all around softer than expected, the labor market can still broadly be described as stable. But we are cautious to conclude that signals like a low unemployment rate (which could still fall further) and very low jobless claims indicate a retightening labor market as opposed to just a shrinking one (or at least a labor market growing only very slowly). The trend of wage growth will ultimately indicate if the labor market is becoming an upside risk to inflation. We do not think this will be the case and expect wage growth to move sideways at the current pace, which was consistent with ~2% price inflation pre-pandemic. Into 2027, there are also building risks that higher rates will start to weigh on labor demand again.