Employers hired at a surprisingly strong pace in August, raising bets that the Federal Reserve will keep its focus on inflation and stoking fears it could be more likely to hike interest rates this month.
US employers added 162,000 jobs in August, above estimates of just 53,000 jobs and a revised gain of 21,000 the previous month, the Bureau of Labor Statistics said Friday.
The unemployment rate remained flat at 4.1%, which some economists have attributed to a shrinking labor force – the combination of an aging population and the Trump administration’s strict deportation agenda.
Employment in June and July was revised upward by a combined 55,000 jobs, pushing last month’s negative report into the green.
The labor force participation rate inched up 0.1%, after shrinking over the first half of the year. It is down 0.5% since January.
Wage growth, however, is still struggling, up just 3.1% over the year in August – its slowest pace since the pandemic and trailing the pace of inflation as energy costs have surged amid the war in Iran.
The odds of a rate hike jumped after the meeting as traders feared the resilient jobs data could make central bankers feel more comfortable raising interest rates at their Sept. 16 meeting.
By approximately 9:30 a.m. ET, traders estimated a 60.3% chance of a quarter-point hike at the Fed’s next meeting – 10% higher than the previous day, according to CME FedWatch, which tracks Fed Funds futures.
Chris Zaccarelli, chief investment officer for Northlight Asset Management, said Friday’s job report is a classic example of the Wall Street term “good news is bad news,” since investors were more concerned about interest rates.
“Although inflation has been an issue, the job market has been more variable, and for some members of the FOMC, it has been something they had kept an eye on and has been one reason they weren’t raising rates more quickly to fight inflation,” he said in a note.
The Dow Jones Industrial Average fell 144 points, or 0.3%, while the S&P 500 and Nasdaq traded roughly flat.
The US 10-year Treasury yield rose to 4.772%.
In a Truth Social post, President Trump celebrated the “Great jobs number” as he urged the Fed to lower interest rates.
“A STRONG COUNTRY MEANS A LOWER INTEREST – IT’S A BETTER CREDIT…Very simple! We should have the LOWEST RATE of any country in the World, like the ‘old days,’” he wrote.
He threatened to stop trading with nations that have a trade deficit with the US unless the Fed lowers interest rates, saying “IT’S BETTER THAN TARIFFS!”
Economists and investors are anxiously awaiting a critical inflation report next week. The Consumer Price Index is scheduled for release on Sept. 11.
In August, leisure and hospitality led the job gains, adding 62,000 after two months of declines.
White-collar sectors, on the other hand, saw significant weakness. Information employment – among those most impacted by the rapid rise of artificial intelligence – lost 23,000 jobs.
Local government education added 42,000 jobs in August, reversing a decrease from the previous month and signaling it might have been a seasonal quirk in the data due to summer breaks from school. However, the sector has been roughly flat since January 2025.
Healthcare and social assistance – which were responsible for nearly all job growth in 2025 – added 13,000 jobs in August, but it’s a slower pace compared to its average gain of 32,000 over the past 12 months.
Manufacturing also showed signs of a turnaround, adding 16,000 jobs in August after hitting a low in December 2025. It’s possible that semiconductor plant buildouts linked to the rise of AI are helping the sector.
Steve Rick, chief economist at TruStage, said it’s important to remember that “a strong headline economy does not mean every household is experiencing it the same way.”
“Lower- and middle-income households continue to face greater pressure from everyday expenses and borrowing costs. That unevenness is why the Fed needs to look beyond any single headline number when assessing the health of the economy,” Rick said in a note Friday.
Consumer spending has remained surprisingly resilient over the past few months, even as Americans face higher prices at the gas pumps.
But consumer sentiment dropped in August, falling to 51.7, according to the University of Michigan’s monthly survey. That’s better than the all-time lows reached earlier this year, but still a hefty 11% drop compared to the same time last year.
Job-seekers, especially recent college graduates, have also reported having a hard time finding full-time employment.
