Job growth in August has yet again upended bets on the Federal Reserve's next move, handing advisors a fresh wrinkle to manage with clients two weeks before the central bank meets.
Nonfarm payrolls jumped by 162,000 last month, the Bureau of Labor Statistics reported Friday, blowing past the 53,000 gain economists surveyed by Dow Jones had penciled in and marking the strongest monthly increase since March.
Meanwhile, the unemployment rate matched expectations as it held steady at 4.1%, with total unemployed persons standing at 7.0 million, the Bureau of Labor Statistics reported Friday.
Economists surveyed by Dow Jones had been looking for a payrolls increase of 53,000.
July's initial reading of a 23,000-job decline was revised up to a gain of 21,000, adding a modestly more encouraging note to the summer's hiring trend
Wage growth stayed contained even as hiring accelerated. Average hourly earnings rose 10 cents, or 0.3%, to $37.75 in August, putting annual wage growth at 3.1%.In August, average hourly earnings for all employees on private nonfarm payrolls rose by 10 cents, or 0.3 percent, to $37.75. Over the year, average hourly earnings have increased by 3.1 percent. The average workweek also edged up slightly, to 34.4 hours.The average workweek for all employees on private nonfarm payrolls edged up by 0.1 hour to 34.4 hours in August.
Odds around the Warsh-led Fed's next policy move have kept oscillating through a summer in which rate-hike probabilities have swung sharply on each new data point. The Federal Open Market Committee's next scheduled meeting will run from September 15 to 16, making next week's August inflation data release from the BLS one to watch with interest.
For strategists, the report reframes the September meeting as a close call rather than a formality. Jeff Schulze, head investment strategist at Franklin Templeton Institute, said the release removes labor-market concerns from the equation heading into the Fed's decision, calling the print "unambiguously strong with surging private payrolls, upward prior month revisions, and solid breadth."
Schulze noted that the three-month average pace of job creation had climbed to 71,000, which he said signals the labor market is "cruising well above the breakeven speed."
"Although [Fed Chair Kevin Warsh] threw cold water on the inflationary read through for wage growth at Jackson Hole, the muted trend in average hourly earnings continues to suggest limited inflationary pressure emanating from labor markets," he said.
Schulze added that the report is "modestly negative for equity markets," since the dampening effect of higher Treasury yields would only be partially offset by the labor market's resilience.
Bradford Smith, portfolio manager at Janus Henderson Investors, cast the report as a reminder that the payrolls data has become increasingly volatile from month to month. He said the August total "will certainly go in the 'hike' column" for policymakers weighing their next move, even as Warsh's bias toward containing inflation coaxes markets to focus more next week's consumer price index report.
Smith pointed to the swing from July's weak reading to August's strong one as evidence that "volatility in this [jobs] statistic is here to stay as the economy teeters around full employment."
Chris Zaccarelli, chief investment officer for Northlight Asset Management, framed the market's initial reaction to the report as a case of "good news, bad news," noting stocks and bonds both sold off immediately following the release.
Zaccarelli said the central question for markets remains whether the Fed hikes rates on September 16, adding that the timing carries added political sensitivity given the upcoming national election.
"We will be watching to see if the stock market shakes this off and rallies into the close before the long weekend," he said, "because that will indicate the optimism around the AI build-out – and extremely strong corporate earnings – are the most important factors, and Fed rate changes are less important for investor psychology."
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