Job Report Mixed, Leans Dovish

[Andrew Postell]

The September 2025 U.S. employment report, delayed by the government shutdown, showed that employers added 119,000 jobs, more than double the expected 50,000. Despite this upside surprise, the unemployment rate edged up to 4.4%, the highest since late 2021, as 470,000 people entered the labor force. Wage growth remained modest, with average hourly earnings rising 0.2% month-over-month and 3.8% year-over-year. July and August job gains were revised down by a combined 33,000, with August flipping to a loss of 4,000 jobs, underscoring a cooling labor market. Job growth was concentrated in healthcare, social assistance, and leisure sectors, while manufacturing and federal government employment declined.

Markets reacted positively to the report. Stock futures extended gains, reflecting investor expectations that the Federal Reserve will hold rates steady at its December meeting. Money markets priced in a slightly higher probability of a rate cut in early 2026, as the data reinforced a narrative of slowing but resilient labor conditions. The combination of stronger-than-expected payrolls and soft wage growth eased inflation concerns, supporting risk assets in the short term.

Bond markets have been a little volatile post-release, with treasury yields down a basis point or two. UMBS, while mixed depending on security type and coupon, are up a few tics, reflecting the slightly bullish tone of the treasury market.