US Adds 162,000 Jobs in August, Boosting Rate Hike Expectations

The US labor market delivered a stronger-than-expected performance in August, with employers adding nearly three times as many jobs as economists had forecast. The report signals renewed strength in the world’s largest economy and has increased market expectations that the Federal Reserve could raise interest rates this month.

According to data released by the US Labor Department on Friday and reported by Reuters, nonfarm payrolls increased by 162,000 in August, far above the 56,000 increase expected by economists surveyed by Reuters. July’s payroll figure was also revised upward to a gain of 21,000, reversing an earlier estimate of a 23,000 decline.

The unemployment rate remained unchanged at 4.1%, despite a substantial increase in the labor force. Around 683,000 people joined the labor force in August, while the labor-force participation rate rose to 61.6%, from 61.4% in July.

The strongest employment gains came from the leisure and hospitality sector, which added 62,000 jobs. Restaurants and bars alone accounted for 59,000 of those positions. Local government education added 42,000 jobs, while total government employment increased by 35,000. Manufacturing added 16,000 jobs and construction gained 22,000.

However, the report also contained some warning signs. The number of people unemployed for 27 weeks or longer increased by 159,000, while the median duration of unemployment rose to 11.4 weeks from 10.5 weeks in July.

Wage growth also moderated slightly, with average hourly earnings increasing 3.1% over the year through August, compared with 3.2% in July. This suggests that, despite strong hiring, the labor market is not yet generating excessive wage pressure that could significantly fuel inflation.

The strong jobs data nevertheless boosted expectations of a Federal Reserve rate hike. Financial markets were pricing in roughly a 62% probability of a 0.25-percentage-point rate increase at the Fed’s September 15–16 meeting, up from about 49% earlier in the week. The Fed’s current benchmark rate stands at 3.50%–3.75%.

The next major test will be the August Consumer Price Index (CPI) report. The inflation data could determine whether the Fed ultimately raises rates or keeps them unchanged.

A higher US interest rate could strengthen the dollar, raise global borrowing costs and put pressure on emerging-market currencies, foreign debt servicing, imports and capital flows.

Source: Reuters