August Jobs Report Blows Past Forecasts, Putting Fed Rate Hike Back on the Table

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The U.S. economy added 162,000 jobs in August, according to CBS News and CoinDesk, far exceeding Wall Street forecasts and snapping a summer stretch of weak hiring.

The result was more than double what economists polled by FactSet had projected, with consensus estimates centered on roughly 65,000 new positions.

The unemployment rate held at 4.1% for the third consecutive month. July's figures were also revised upward, from an originally reported loss of 23,000 jobs to a gain of 21,000, giving the summer labor picture a somewhat brighter look in retrospect.

A Stark Contrast to What Economists Expected

Analysts had prepared for another sluggish month. As NBC News reported ahead of the release, several private-sector indicators had economists bracing for continued softness, with some forecasts as low as 25,000 new jobs.

Citi economist Veronica Clark said before the report that wage growth could come in even softer than the already-modest 0.3% monthly increase the market expected.

Bank of America Securities economist Shruti Mishra had noted that August jobs reports tend to surprise on the downside, pointing to seasonal patterns as a drag. August is historically weak for U.S. payrolls.

The actual numbers told a different story.

Market Reaction Was Swift

Financial markets moved quickly on the surprise. CoinDesk reported that bitcoin slipped roughly 2%, falling back below $80,000. The 10-year Treasury yield climbed 3.3 basis points to 4.80%, while the 2-year note rose seven basis points to 4.40%.

U.S. stock index futures edged lower.

The reaction reflects investor concern that strong hiring data gives the Federal Reserve less reason to hold off on raising interest rates. The Fed's next policy meeting is scheduled for mid-September.

The Fed's Next Move

Federal Reserve Chair Kevin Warsh placed a September rate hike firmly in play during a speech at Jackson Hole one week ago, saying the Fed's price-stability mandate remained more concerning than labor market conditions.

Fed Governor Chris Waller subsequently tempered those expectations, suggesting a hike was far from certain.

Friday's payroll report tilts the balance back toward the hawks. As Morningstar noted ahead of the release, with inflation still running above the Fed's 2% target, a strong jobs number was unlikely to ease pressure for a rate increase.

The next major data point is the August Consumer Price Index report, due September 11. That figure is widely seen as the more decisive input for the Fed's September decision.

100,000 job cuts elsewhere in the economy have added to the uneven picture heading into that release.

Immigration Policy as a Wildcard

Several economists flagged federal immigration policy as a factor shaping the labor supply.

Bill Adams, chief U.S. economist at Fifth Third Commercial Bank, told Morningstar that the removal of Temporary Protected Status for hundreds of thousands of Haitian immigrants in late July constrained growth in healthcare and social assistance sectors.

Adam Schickling, senior economist at Vanguard, described the overall environment as a market where very little hiring or firing is taking place, while still characterizing the labor market as broadly resilient.

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