The September jobs report was disappointing, with only 29,000 payroll jobs added. Moreover, revisions subtracted another 60,000 jobs from the July and August figures. This weakness came as a significant surprise to most forecasters, who had expected an increase of about 90,000 jobs in September. As a result of today’s lackluster report, the six-month moving average of job growth has fallen back to 65,000 — a steep decline from over 100,000 just one month ago.
These numbers also suggest that the labor market is currently contributing little to the inflationary pressures in the broader economy, which are being driven mostly by rising commodity prices. Although monetary policymakers are still expected to hike rates by the end of the year, today’s employment numbers make it more likely that they will hold at the end of the month.
Industry Breakdown
Unsurprisingly, the industry breakdown showed that some sectors expanded while others contracted. Healthcare is one part of the economy that continues to demonstrate strength, adding about 23,000 jobs in September. Construction and hospitality added roughly 11,000 and 10,000, respectively. Manufacturing gained just over 9,000 jobs, continuing the industry’s noticeable rebound this year. By contrast, employment in information and professional and business services fell by about 10,000 and 9,000, respectively.
Outside healthcare, most sectors remain largely stagnant or are shedding jobs. Employment in information has declined gradually since early 2023, following a period of over-hiring during the post-pandemic boom, while professional and business services have now recorded job losses for three consecutive months. While it is possible that some of the layoffs in these sectors are AI-related, this is far from certain. Global economic uncertainty, high interest rates, and rising energy prices are also major headwinds.
Is AI carrying the labor market?
The pockets of the labor market that still show strength are being supported by AI, though perhaps not in the way many would expect. The data-center construction boom is now providing meaningful support to the economy. We already had evidence that the surge in investment was boosting GDP, but now it’s also showing up in the labor market. Construction, typically a sector that suffers quite a lot from rising interest rates, has actually been adding jobs at a stable rate in recent months (around 15,000 on a 3-month moving basis).
Manufacturing is showing similar signs of resilience even as tariffs continue to be a drag on the sector. Manufacturing companies have seen a remarkable increase recently, and the rebound is now also translating into stronger hiring demand, with the sector adding close to 15,000 jobs monthly over the last quarter.
Looking at Indeed job postings, one can see how manufacturing has experienced a recent surge in job vacancies, far exceeding the rest of the market.
When digging deeper into recent employment trends, it becomes clear to what extent the AI boom has been supporting the labor market over the last couple of years. Architectural and engineering services, utilities, and nonresidential construction are all pockets of the labor market that have seen an employment boom. All these sectors are benefiting from the construction of data centers and related infrastructure — including power generation and the electricity grid — around the country.
Unemployment ticked up slightly, but so did labor force participation
While the unemployment rate ticked up marginally to 4.2%, it remains historically low. This minor move shouldn’t be a great concern, especially since it was paired with an increase in labor force participation.
After dipping during the summer, the prime-age participation rate increased to 83.7%, meaning that it’s edging closer to its all-time high in recent decades (around 84%). Though hiring isn’t very strong across sectors, most workers have a job and very few are unemployed. The economy remains at full employment even as worker churn (job-to-job transitions) are noticeably lower than just a couple of years ago.
One piece of bad news for workers is that average hourly earnings have dipped to just under 3.3%. With inflation running higher, real wage growth has been in negative territory in recent months. And as oil prices are not expected to come down any time soon, this is unlikely to change by year-end.
What does this mean for recruiters?
The big picture is that healthcare remains a source of job growth, although momentum is slowing. This leaves the AI infrastructure buildout as the labor market’s only other major tailwind. Hiring in construction and manufacturing has accelerated as investment in data centers and related infrastructure has surged. But beyond these two sources of strength, the overall outlook for job growth remains lackluster.