Unemployment Rises to 4.2% as Wages Slow After Fed Rate Hike

A Rate Hike Meets a Cooling Job Market

The Federal Reserve made its first rate increase in about three years in mid-September. Two weeks later, the labor market delivered a soft report. On September 16 the central bank raised its benchmark rate by a quarter point, to a range of 3.75% to 4%. It was the Fed's first hike since July 2023, and the reason given was inflation that would not come down.23 Regional coverage in New Jersey focused on what the move means for households. Borrowing costs on credit cards and car loans are likely to go up, and the last change in the opposite direction was a quarter-point cut the previous December.21

The September employment report, released October 2, showed weaker hiring than expected. Employers added 29,000 jobs and unemployment rose from 4.1% to 4.2%.24 It was the last official jobs report before the midterm elections, which made it politically important as well as economically important.26 Taken together, the hike and the jobs report raise a question the Fed now has to answer: did it start tightening just as the labor market was losing steam?

What the Numbers Show

The main figures are the same in every account, but the size of the miss depends on which forecast you use. CNBC, citing a Dow Jones survey, said economists expected about 84,000 jobs.4 Reuters' consensus was around 90,000, the figure CNN and others used.27 Either way, actual hiring came in far below expectations.

Revisions to earlier months were arguably more significant than the September number. July was originally reported as a gain of 21,000 jobs and is now a loss of 10,000. August was cut from 162,000 to 133,000. Together, the two months lost 60,000 jobs from the record.47 One economist interviewed in Colorado said the July revision mattered a great deal, because it turned what had looked like modest growth into actual job losses.3 One outlet put the three-month average at about 51,000 jobs per month.5

The details of the report point in different directions. Unemployment rose partly because more people started looking for work. The labor force grew by about 485,000, while household-survey employment rose by about 406,000. Participation climbed to 61.8%, its highest level since May.45 A broader measure of underemployment, which counts discouraged workers and people stuck in part-time jobs, fell to 7.6%, its lowest since January 2025.4 Employment among workers aged 25 to 54, a group many economists treat as the best overall gauge, also rose after an unexpected drop over the summer.1 Read this way, the higher jobless rate reflects people re-entering the labor market as much as people losing jobs.

Wage Growth Is the Real Story

The wage figures matter more than the payroll count. Average hourly earnings rose 0.1% in September, to $37.81, which puts the annual gain at 3.0%. That is the slowest pace since May 2021.57 It was also the fourth straight month of slowing wage growth.2 Economists had expected 0.3% for the month and 3.1% for the year.4

That slowdown is happening while prices are speeding up. The August Consumer Price Index showed inflation at 3.4%, so wages have now trailed prices for five straight months.10 Heather Long, chief economist at Navy Federal Credit Union, said wage gains have been entirely wiped out by inflation since March.10 The New York Times connected the price increases to the war in Iran and said most workers' pay has not kept up.1 The September CPI report, due October 14, will show whether paychecks fell further behind.9

This is a different kind of weakness than a typical downturn. Layoffs have not spiked, and weekly jobless claims remain near multi-decade lows.5 Instead, economists describe a market where few people are hired and few are fired. The latest job openings survey showed little change.6 Workers are staying in their current jobs, unemployed people are taking longer to find new ones, and wages are suffering as a result.3 The average unemployed worker has been searching for almost six months.1 Bill Adams of Fifth Third said slow wage growth during rising inflation suggests workers are having trouble moving to better-paying jobs, even with unemployment still low.9

One small inconsistency appears in the coverage. CNBC put the average workweek at an unchanged 34.6 hours, while another outlet reported 34.4.45 It does not change the overall picture.

White-Collar and Tech Jobs Are Shrinking

The industry breakdown matters for tech workers. Gains were concentrated in a few sectors: health care added 17,000 jobs, construction 11,000 and manufacturing 9,000.46 More industries cut jobs than added them. Information, which includes tech, lost jobs, as did professional and business services and financial activities.2 Financial activities alone shed 7,000 positions.6 The Times said the signs of weakness in white-collar sectors feed worries about what comes next.1

Company announcements fit that pattern. Amazon told staff in its Stores business that their roles were eliminated. A person familiar with the matter put the total at fewer than 1,000 people, across customer service, marketplace support and retail engineering.17 Those cuts follow roughly 30,000 job reductions in late 2025 and early 2026, even as Amazon plans a record $220 billion in spending on AI infrastructure.17 HubSpot is cutting nearly 660 jobs, about 7% of its staff. Its CEO said the goal is a flatter organization, not AI-driven efficiency.15 Workday is reducing its global workforce by 2.5%.12 Netflix is reportedly preparing to cut about 5% of its staff.19

Layoff trackers agree that the year has been heavy, though their totals differ. One tracker counts more than 225,000 affected workers across 519 events and says AI was cited in 41% of them.11 TrueUp's count, as reported by Yahoo, is above 185,000 so far in 2026. That compares with about 245,000 for all of 2025, so this year is running faster.12 The gap between trackers comes from how each defines a tech company and which announcements it includes. Neither number is official.

Companies explain the cuts differently. Microsoft said its 4,800 eliminated roles were not being replaced by AI, but acknowledged that AI is changing how work gets done.14 Oracle has directly linked its cuts to AI investment.14 HubSpot explicitly denied AI was the reason.15 This analysis reads the pattern as an investment trade-off: large companies are moving money from salaries to computing infrastructure. That shows up in the national data as a slow loss of white-collar jobs, not as a wave of mass layoffs.

The New Jersey Angle

New Jersey's economy is closely tied to national trends. A summer interview noted that unemployment had edged up both nationally and in the state, and described New Jersey as doing neither better nor worse than the country overall.27 Some local job losses are already showing up. Samsung Electronics America is moving its U.S. headquarters from Englewood Cliffs to Plano, Texas, which affects 739 New Jersey positions.20 HelloFresh's closure in Swedesboro affects 374 workers.11

Higher rates are also slowing construction. Construction spending in the state rose 19% to $18 billion, but new project starts grew only 1%. Developers are holding back because commercial borrowing costs of about 6.3% wipe out projected returns.29 Economist Jeffrey Otteau noted that investors can earn 4% to 5% on Treasury bills with no risk, which makes starting new projects less appealing.29

Some local experts criticized the hike directly. A Rutgers business professor argued that the current inflation comes mostly from oil and food shocks and federal deficits, none of which higher short-term rates can fix. He called the hike counterproductive.21 That is a minority view, but the weak September report gives it some support.

What the Fed Does Next

Markets took the report as a reason for the Fed to wait. Stocks rose and bond yields fell as traders reduced bets on another hike at the late-October meeting.2 The Times reported that expectations for an October increase had dropped sharply.1 One analysis argued that 3% wage growth weakens the case for a second hike. Energy shocks justify tightening when they push workers to demand higher pay, and that is not happening.8

Not everyone thinks the tightening is over. Long called the labor market stable and said she does not expect the Fed to be talked out of a December hike.4 RBC's Mike Reid said inflation is still the main concern.2

The most likely outcome is a pause in October, with a December decision depending on what the October 14 inflation report and the next jobs report show. The labor market is not collapsing, but it is not giving workers much leverage either. Hiring has stalled, real wages are falling and white-collar employers are cutting staff. That makes the central bank's next steps harder to judge, and it weighs on households as the year ends.