US nonfarm payrolls fall sharply in August, unemployment rises

The US Labor Department’s closely watched employment report showed that nonfarm payrolls increased by 29,000 jobs in September compared to downwardly revised rise by 133,000 in August (from initially reported 162,000) and strongly undershot expectations for 90,000 increase.

Although the data pointed to much stronger than expected slowdown in September, economists do not see immediate threat of direction change in the labor market, but rather as seasonal deviation, as there have been no signs of a broad increase in layoffs. Also, first-time applications for unemployment benefits have been hovering near the lowest in over five decades amid robust corporate profit growth and resilient domestic demand.

However, they suggest that full negative impact from the US-Israel war is still to be seen, anticipating that high energy prices and disrupted supply chains would start to disrupting the labor market late 2026 and into the next year.

Economists see the transportation and agriculture sectors as the most vulnerable and likely the first to be hit by high energy prices, particularly with diesel prices which are at record highs and pointing at ongoing trade tariffs which have already raised anxiety among manufacturers.

The separate report showed that the unemployment rate increased to 4.2% last month from 4.1% in August, although economists do not see the minimal rise as a threat as unemployment remains low, mainly due to significant reduction in labor supply from Trump administration’s immigration crackdown and retirement.