The US economy added 29,000 jobs in September, the Bureau of Labor Statistics reported on Friday, against a consensus of about 84,000 in the Dow Jones survey cited by CNBC. The unemployment rate rose to 4.2% from 4.1%. Within hours, traders had cut the odds of a Federal Reserve rate hike this month by more than half.

That reaction may be too quick. The report is soft, but it is softer against an old benchmark than against the one that now matters.

What the Report Showed

Beyond the headline, the revisions hurt. The BLS cut its July and August estimates by a combined 60,000 jobs, according to the Fiscal Lab, which analyzes the data. August's gain was revised down to 133,000, Yahoo Finance reported. The 12-month average monthly gain is only 45,000, so September fits a slow trend rather than breaking it.

Average hourly earnings rose just 0.1% on the month, below the 0.3% economists had forecast, according to Yahoo Finance. The average workweek held at 34.4 hours, the BLS said. The unemployment rate has stayed in a narrow range of 4.1% to 4.2% in recent months.

A Weak Number Against a Lower Bar

Here is the part the headline misses. Brusuelas, an economist writing on X and cited by Yahoo Finance, argued that the economy needs only about 35,000 new jobs a month to keep the labor market stable, because tight immigration policy and demographics limit the growth of the labor force. By that yardstick, 29,000 is a miss, but a small one, and nowhere near the 100,000-plus pace that used to signal health.

The unemployment rate tells a similar story. The Fiscal Lab noted that the rise to 4.2% was not statistically significant, and CNBC reported it came largely from more people entering the labor force, with participation rising to 61.8%. Jobs growth that slows because fewer workers are available is a different problem from jobs growth that slows because employers are laying people off. This is what economists mean by a "low hire, low fire" market, as El-Erian described it on X.

How Markets Reacted

Stocks rose. The S&P 500 climbed 0.8% on Friday to 7,724.06, Investing.com reported, as investors reduced expectations of imminent Fed tightening. Treasury yields fell. The CME FedWatch tool put the chance of an October hold at 77%, according to Babypips, while Kalshi's market priced about 85%, and an analysis of futures pricing showed the odds of an October hike dropping to about 14% from roughly 70% earlier in the week.

CNBC quoted Thomas Simons saying the number should end the case for an October hike. The gains were not enough to rescue the week, however. Investing.com noted US stocks still posted a weekly loss because of a bond market selloff, the same pressure behind the weak Treasury auction that pushed yields to near 20-year highs last week.

Why the Fed Is Not Off the Hook

The Fed raised rates to 3.75%-4% on Sept. 17 in a unanimous 12-0 vote. That decision was about inflation, not jobs. Inflation is being driven by oil, and the stalemate over the Strait of Hormuz has not been resolved after the US rejected Iran's terms. A weak payroll number does nothing to bring down diesel prices.

My view: markets are treating one report as a policy signal when the report may simply reflect a smaller labor force. Yahoo Finance noted that inflation data has gained importance for the Fed in recent months, and the next price figures are likelier to decide the October meeting than September's payrolls. Odds that swing from roughly 70% to 14% in a week suggest traders are reacting to each data point rather than to a settled view.

That does not mean the Fed will hike. A central bank that has just raised rates has little reason to act again on a softer jobs report, and some Fed officials focus on the unemployment rate more than payrolls, CNBC noted, which makes the 4.2% reading the number to watch. But the odds will move again, and probably more than once, before the late-October meeting.

What to Watch Next

First, revisions. The BLS has now cut two straight months of data, and a third would turn a soft report into a pattern. Second, the unemployment rate in the October report, scheduled for Nov. 6: if it holds near 4.2% because of labor force growth, the market will read it as stability, but if it rises while participation falls, the story changes. Third, inflation, because the question for the Fed is whether the oil shock is spreading into wages and services.

For households, the practical point is simple. A hiring slowdown with low layoffs means most people in jobs keep them, while those looking face a slower search. This article is general information, not financial advice.