Slight payroll increase will steady unemployment

October 30, 2026

We expect payrolls to rise by 45,000 jobs in October, a bit stronger than the 29,000 added in September. Private employers should add 50,000 jobs, while the public sector sheds 5,000. Payrolls averaged 68,000 per month between January and September but were slower over the summer. 

Federal employment is near its lowest level since 1966. Deferred resignations, early retirements and layoffs drove the drop; the one-for-four rule keeps it there. Under a February 2025 executive order, agencies can hire just one new employee for every four who leave.

State and local government budgets are running dry. The largest Medicaid cuts take effect January 1. States, which administer the program, are bracing not hiring.

Indeed job postings show private sector hiring clustered in a few places. Healthcare leads with physicians, surgeons and therapists topping the list. Engineering fills three of the top five, tied to infrastructure and the data center buildout. Tech hubs are the weak spots. Challenger, Gray & Christmas counted nearly 166,000 announced tech layoffs through September, up 54% from a year ago and nearly one-third of all announced job cuts. 

Manufacturing is expected to add 6,000 jobs, but only in pockets. September's Institute for Supply Management (ISM) survey showed higher employment only in computer and electronic products and transportation equipment, which includes aerospace. The employment index rose to 52.7 from 51.2, its third consecutive month above 50. That is a trickle, not a tide.

Average hourly earnings are expected to rise 0.3% in October after increasing just 0.1% in September, which will leave wages up only 2.9% from a year ago. If that occurs, wages will come in below the pace of inflation for 13th consecutive months. Hours worked are expected to hold at 34.4 per week. More paychecks in the economy can help keep spending afloat, even as many individual wage earners feel as though they are losing purchasing power.

Structurally low unemployment

Fewer people are entering the labor market. A surge in baby boom retirements and curbs on immigration have slowed labor force growth. That has pulled the breakeven pace of job creation needed to hold unemployment steady close to zero, or within the statistical margin of error of plus or minus 100,000. 

Those shifts suggest that the unemployment rate will hold at 4.2% in October. That would put the unemployment rate below 4.5% for 59 months. That is the longest stretch of the post-WWII era. The only period that compares was the 57-month stretch of the 1960s. The problem is the low rate of turnover. That and fears that AI will displace workers has fueled worker anxiety.