Only 29,000 Jobs Were Added. So Why Did 485,000 People Join the Workforce?

On the first Friday of almost every month, the government releases a report that moves stock markets, shapes interest rate decisions and fuels political arguments. The September report, released October 2, had a puzzle inside it: employers barely added any jobs, yet hundreds of thousands of people joined the workforce. Solving that puzzle is the fastest way to understand what the unemployment rate really measures.

What Happened

The Bureau of Labor Statistics said employers added just 29,000 jobs in September, far below the roughly 84,000 economists expected. Job counts for July and August were also revised down by a combined 60,000, and July now shows a loss of 10,000 jobs. The unemployment rate rose to 4.2 percent from 4.1 percent. Health care added the most jobs, about 17,000, while financial and professional services lost jobs. Average hourly pay rose only 0.1 percent for the month.

Here is the twist: the labor force grew by about 485,000 people, pushing the share of adults working or looking for work to 61.8 percent, its highest level since May. The unemployment rate among teens was 14.5 percent.

Why It Matters

The weak report changed expectations for interest rates almost overnight. Before it, traders thought another Federal Reserve rate hike in late October was fairly likely. Afterward, the odds fell to roughly 13 percent, and one Jefferies economist called the report the nail in the coffin for an October hike. (A hot inflation report two weeks later pushed those odds back up, which shows how much each data release matters.) The report was also the last one before the November 3 midterm elections, so both parties argued about what it meant for the economy.

The Concept: How the Unemployment Rate Works

The unemployment rate is not the share of all people without a job. It is the number of unemployed people divided by the labor force. The labor force includes only people who either have a job or are actively looking for one. A retiree, a full-time student who is not job hunting, or someone who has given up looking is not counted as unemployed. They are simply outside the labor force.

That explains September's puzzle. When 485,000 people started looking for work but only a small number of new jobs appeared, many of those new job seekers were counted as unemployed, so the rate went up. Economists actually see some good news in that: people only start looking when they think jobs are out there.

There is one more wrinkle. The government uses two separate surveys. One asks about 60,000 households who is working or looking, which produces the unemployment rate. The other asks businesses how many people are on their payrolls, which produces the jobs-added number. That is why the two figures can sometimes seem to tell different stories.

Why Teens Should Care

The teen unemployment rate, 14.5 percent in September, is always much higher than the overall rate, because teens have less experience and many are looking for part-time or seasonal work at the same time. In a slowing job market, it pays to start early. If you want a holiday job, apply in October, not December. Show up with a simple resume, even if it only lists school activities, volunteering and reliability. Treat health care, which keeps adding jobs, as worth exploring for summer or after-school roles.

And the next time you see a headline saying unemployment went up, ask the follow-up question you now know to ask: did people lose jobs, or did more people start looking?