US labor market is starting to resemble a random walk
Summary
- The US labor market showed weaker-than-expected growth in September, with nonfarm payrolls increasing by only 29,000 against an expected 80,000, and the unemployment rate rising to 4.2% due to higher labor force participation.
- Interest rate expectations were significantly adjusted downward following the employment report, with the probability of an October Fed rate hike dropping from 70% to 23% and a December hike from 95% to 86%.
- Despite the volatility in monthly employment figures, the overall labor market in 2026 has been strong, though not strong enough to necessitate aggressive monetary policy tightening by the Fed.
- The economic outlook remains mixed, with consumer confidence weakening despite strong consumption and production, and interest rate expectations further dampened by cooler-than-expected PCE inflation and a weaker ISM manufacturing index.
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Automatic translation: Originally published in Finnish 05/10/2026, 04:07 GMT. Give feedback here.
The weaker-than-expected employment report for September took the air out of interest rate expectations. There is plenty of volatility, but the big picture of the labor market did not change substantially.
| Indexes | closing | change 1 wk | YTD | |
| OMX Helsinki | 13637,5 | -1,7 % | 9,8 % | |
| Eurostoxx 600 | 631,4 | -1,1 % | 6,6 % | |
| S&P500 | 7722,7 | -0,3 % | 12,8 % |
Last week was a declining week on the European and US stock markets, although a late-week spurt was seen particularly on Wall Street, driven by lowered interest rate expectations. Nonfarm payrolls in the US grew by only 29,000 in September, while the consensus expected an increase of 80,000. August's slightly revised figure was 133,000. The unemployment rate rose to 4.2% (prev. 4.1%), but the increase was mainly explained by a rise in the labor force participation rate, which on the other hand is a healthy sign. Wages rose very moderately, by only 0.1% from the previous month.
US: Nonfarm payrolls, revision
Source: BLS, Inderes
Labor market figures are increasingly starting to resemble a random walk, where the direction changes abruptly. Indeed, monthly employment figures have fluctuated exceptionally strongly this year, which decreases the informational value of any single report. In the big picture, the labor market has been strong during 2026, but not so strong that the Fed needs to tighten monetary policy aggressively. The economic picture remains contradictory: consumer confidence has weakened worryingly, even though realized consumption and production have remained strong.
Interest rate expectations reacted quickly to Friday's employment figures. At the beginning of the week, the market priced in an expectation of around a 70% probability for a Fed rate hike in October, but by Friday the figure was only 23%. Meanwhile, the probability of a December rate hike decreased from 95% to 86%. Expectations were also weighed down by a cooler-than-expected PCE inflation and a weaker-than-expected ISM manufacturing index, even though its price component remained at a high level. The air has been let out of interest rate expectations once again. A Fed rate hike once a quarter is a better guess for the path of the policy rate than the pace of rate hikes at every meeting seen now.
US: ISM manufacturing index
