Federal and state governments cut 122,000 employees this year through September. But other industries hired.
By Wolf Richter for WOLF STREET.
The headcount reduction by the federal government reached 97,000 since January, including a further reduction of 3,000 civilian employees in September, according to the nonfarm payroll report for September, released today by the Bureau of Labor Statistics.
But this does not yet include the roughly 100,000 civilian employees of the federal government that took the voluntary “deferred resignation” deal in the spring under which they got paid through September 30. Since they were still on the payrolls in September, but came off the payrolls on October 1, that reduction will hit the next nonfarm payrolls report, which will be for November, the October report having been cancelled due to the government shutdown.
State governments have shed 25,000 employees since January, including September’s increase of 16,000 (through August, they had shed 41,000 employees).
Government payrolls don’t include workers at government contractors. They’re in private-sector categories, such as in “Professional and business services,” and we have seen some declines there this year, though it is impossible to determine what portion is due to government cutbacks.
So, nonfarm payrolls without federal and state governments rose by 106,000 jobs in September from October. In June, there was zero job growth, and the trend has bounced back since then (blue columns in the chart).
Over the past three months, this measure rose by 161,000 jobs. The 3-month average, which irons out the month-to-month squiggles, rose by 54,000 jobs (red line).
Civilian employment at the federal government dropped by 3,000 in September, to 2.92 million, taking employment back to where it had been in June 2023.
The share of federal employment dropped to 1.82% of total employment, the lowest in the data going back to 1939.
Total nonfarm payrolls rose by 119,000 in September from August, to 159.6 million. July and August were revised down by a combined 33,000 jobs.
Over the past three months combined, 187,000 jobs were added to payrolls, even as the federal government shed 25,000 jobs over the three months, and state governments shed 12,000 jobs. The 3-month average rose to 62,000 jobs (red line).
The government shutdown in October didn’t impact the data collection for this September report – it only delayed it. But it killed the October report. October figures will be included in the November report, according to the BLS, which also explained today:
“September estimates from the establishment survey include both data collected on our normal schedule prior to the shutdown and also September data that businesses self-reported electronically during the shutdown. As a result, the establishment survey collection rate (80.2 percent) for this initial release of September 2025 data is higher than usual.”
Average hourly earnings rose by 0.25% in September from August (+3.0% annualized. The three-month average hourly earnings rose by 4.0% annualized, a slight acceleration. The three-month average has zigzagged since April.
Year-over-year, average hourly earnings rose by 3.8% in September, a slight deceleration from the prior two months, but well above the wage growth before the pandemic.
The prime-age labor force participation rate (25-to-54-year-olds) remained at 83.7% in September, same as August, which is historically high.
The labor force participation rate shows the percentage of the population that either has a job or is looking for a job. When people retire and stop looking for a job, they exit the labor force but remain in the population until they die. The surge of boomer retirements, which started about 15 years ago and continues, has pushed down the overall labor force participation rate, as these retired boomers are still in the population but no longer in the labor force. The prime-age labor force participation rate eliminates the issue of the retiring boomers.
The unemployment rate (U-3) rose to 4.4% in September, still historically low, but quite a bit higher than it had been in recent years.
This is in line with the Fed’s projections. In its last “Summary of Economic Projections” (SEP), released at the September meeting, the Fed projected the unemployment rate to reach 4.5% by the end of 2025. This rising unemployment rate has been among the causes for the Fed’s labor market concerns and rate cuts, despite accelerating inflation and “solid” economic growth through Q3.
The unemployment rate reflects the number of unemployed people who are actively looking for a job divided by the labor force (people working or looking for a job).
Jobs by Major Industry over time.
The jobs in each industry are defined by work location. The primary activity at that facility determines the industry category. For example, a worker at an Amazon fulfillment center would be under “transportation and warehousing,” not “retail.” It’s not the company that matters, but the work being done at that specific location.
Healthcare and social assistance:
- Total employment: 23.5 million.
- 3-month average growth: +56,000
Professional and business services: includes facilities whose employees work primarily in Professional, Scientific, and Technical Services; Management of Companies and Enterprises; Administrative and Support, and Waste Management and Remediation Services.
It includes jobs in tech and social media.
The increasing use of AI, which started years ago, has also been fingered as one of the reasons for the reductions in employment.
The explosion of employment in 2021 and 2022 turned out to be over-hiring. Companies then came to their senses and began shedding the excess they’d added over those years.
- Total employment: 22.5 million
- 3-month average change: -17,000
Leisure and hospitality – restaurants, lodging, resorts, etc. After the collapse of employment during the lockdowns, the industry’s employment has fully recovered and has continued to grow:
- Total employment: 17.1 million, new record.
- 3-month average growth: +29,000
Retail trade includes workers at brick-and-mortar retail stores, such as malls, auto dealers, grocery stores, gas stations, etc., and other retail locations such as markets. It does not include the tech-related jobs of ecommerce operations, drivers, and warehouse employees.
A big portion of this sector has been under pressure from ecommerce, and dozens of major retailers have been liquidated in bankruptcy court, some of which we have documented since 2016 in our Brick-and-Mortar Meltdown series. The long-term decline in employment began in 2017, driven by employment at malls, with malls themselves turning into zombie malls around the country.
The brick-and-mortar retailers that are doing well are those that are selling groceries, motor vehicles, gasoline, and other products that are under less pressure from ecommerce.
- Total employment: 15.6 million
- 3-month average growth: +8,000.
Manufacturing: Automation is key and drives manufacturing in the US. Companies are investing lots of money to push automation to the next level. Automation replaces lots of human labor doing repetitive manual work. Manufacturing jobs of today often require high skill levels and include tech jobs.
- Total employment: 12.7 million
- 3-month average growth: -10,000
Financial activities (finance and insurance plus real estate renting, leasing, buying, selling, and management).
With home sales down by 25% for three years, and mortgage originations down by even more, a large number of real estate agents have exited, as have employees at mortgage lenders and mortgage brokers. We can see that here.
- Total employment: 9.2 million, new record
- 3-month average change: -3,000
Construction (all types, from single-family housing to highways). Construction in the housing sector and the office has been hit by lack of demand. But construction in other sectors has been stronger, and construction of data centers, factories, and power plants has been booming amid complaints of shortages of skilled labor.
- Total employment: 8.31 million
- 3-month average growth: +1,000
Transportation and Warehousing:
- Total employment: 6.7 million
- 3-month average growth: +1,000
Wholesale Trade:
- Total employment: 6.2 million.
- 3-month average growth: -1,000
“Other services”: includes equipment and machinery repairing, promoting or administering religious activities, grantmaking, advocacy, drycleaning, laundry services, personal care services, death care services, pet care services, photofinishing services, temporary parking services, and dating services.
- Total employment: 6.05 million
- 3-month average growth: +7,000
“Information” includes facilities where people primarily work on web search portals, data processing, data transmission, information services, software publishing, motion picture and sound recording, broadcasting including over the Internet, and telecommunications.
This includes work sites by tech and social media companies that had gone on an over-hiring binge during the pandemic, and they have admitted it, and they have reversed course.
And AI has had a profound impact in these sectors for years.
- Total employment: 2.93 million
- 3-month average growth: -4,000
Arts, Entertainment, and Recreation:
- Total employment: 2.73 million, a record
- 3-month average growth: +8,000
Federal government:
- Total employment: 2.92 million
- 3-month average growth: -8,000
State governments: A large part of employment here is in colleges and universities, and in healthcare. First responders and law enforcement are also large components.
- Total employment: 5.5 million
- 3-month average growth: -4,000
Local governments: Most of the jobs are in education across all grade levels, from preschool to community colleges and trade schools, in healthcare, and law enforcement.
- Total employment: 15.2 million
- 3-month average growth: +18,000
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Huang on a minute… they said AI can only go up. Sam Alman-Fried investing $1.4 Trillion over the next 3 years. What more do they want?