The consensus read on September’s labour market data is broadly upbeat: US payrolls set a September 2026 record of 159.04 million nonfarm jobs, private-sector hiring continues, and unemployment remains historically low. Look a little closer at the underlying numbers, and a less comfortable picture assembles itself.
A record built on a shrinking workforce
Net nonfarm payrolls rose by 29,000 in September from August, with private-sector employers adding 46,000 jobs while governments at all levels shed 17,000, mostly at the local level. The federal government has shed 328,000 jobs since January 2025, and state governments a further 53,000, partly attributed to declining enrolment at public universities as foreign student numbers fell. According to American Default Research, whose estimates of Bureau of Labor Statistics data extend to 1939, the 159.04 million figure is the highest on record. That is a genuine milestone. It is also, in the current context, a somewhat misleading one.
The labour force has contracted by roughly 2 million people from its 2025 peak, driven by the crackdown on illegal immigration and the continued wave of boomer retirements. The three-month average of labour force change rose by 301,000 in September, the first such increase this year, following a cumulative drop of 2.07 million over the prior eight months. A record payroll total against a shrinking pool of potential workers flatters the headline. When supply falls, low unemployment is the arithmetic outcome, not necessarily evidence of a buoyant economy.
The prime-age labour force participation rate, which strips out the retirement effect, rose to 83.7% in September, the highest since May, with the three-month average at 83.5%. That range, the highest in over 20 years, is the one number in this report that genuinely holds up under scrutiny. Prime-age workers are engaging. The aggregate story, by contrast, is partly an artefact of demographic and policy-driven labour supply compression.
The wage squeeze the US payrolls record doesn’t resolve
Here is where the data becomes more uncomfortable. Average hourly earnings rose by 0.13% in September from August and by 3.0% year-over-year, to $37.81 per hour. CPI inflation ran at 3.4% in August, and higher in prior months. Wage growth has been lagging behind CPI since April, after outrunning it for the three years through March 2026. Workers are, in real terms, losing ground. That is not a rounding error; it is now a sustained trend.
The six-month average gain of total nonfarm payrolls stands at 66,000 jobs, a step down from the August average, which had been the highest since June 2024. The private-sector six-month average of 67,000 is similarly a retreat from August’s 93,000. Month-to-month revisions have been volatile: the prior two months were revised down by a combined 60,000 in this release, after having been revised up by a combined 55,000 in the previous one. That yoyo pattern is not evidence of a stable trend in either direction; it is evidence of a data series that should be read with more scepticism than the headline typically invites.
Sector composition offers some further texture. Healthcare added 23,000 jobs, construction 11,000, and leisure and hospitality 10,000. Manufacturing added 9,000. Against that, information shed 10,000, professional and business services lost 9,000, and financial activities including real estate dropped 7,000. The gains are concentrated in domestically oriented, largely non-tradeable sectors. The losses fall on sectors more exposed to credit conditions, business investment decisions, and, not incidentally, trade policy uncertainty.
On that last point: according to Yahoo Finance, after the US Supreme Court struck down import duties, the Trump administration responded by imposing a 10% global tariff and subsequently announced it would rise to 15%. The professional and business services contraction, and the weakness in information and financial activities, sits in that policy environment. The connection is not asserted here as causal, but the coincidence is not obviously irrelevant either.
Population context matters too. Yahoo Finance reported Census Bureau estimates showing the US population grew by just 1.8 million people, or 0.5%, to 341.8 million in the year ending June 2025. A labour market producing 66,000 net new jobs per month on a six-month average, against a population of that scale, is not running hot. It is running. The distinction matters when wages are already failing to keep pace with prices.
The unemployment rate edged up to 4.18% from 4.14%, with 7.11 million people actively seeking work against a labour force of 170.3 million. Historically, 4.18% remains low. In the context of a structurally compressed labour supply, it tells you less than it usually would. The record payroll count is real. What it is masking may be more consequential than what it is celebrating.
