Hiring Surges Unexpectedly in August With 162,000 Jobs Added in Key Signal for Fed

Defying expectations, the U.S. economy added 162,000 jobs in August, marking a major turnaround after two disappointing months in a row, while the national unemployment rate held steady at 4.1%.

The latest report from the Bureau of Labor Statistics, released Friday, shows that nonfarm payrolls significantly expanded at the end of summer, even as most economists expected a far more modest hiring growth in the 53,000 to 65,000 range.

This latest print, coming just days before the September meeting of the Federal Open Market Committee (FOMC), sets the stage for a potential interest rate hike.

Under its dual mandate to promote maximum employment and stable prices, the central bank typically raises rates to curb inflation and lowers them to stimulate hiring.

A hiring boom in food services and drinking places led the way with 59,000 jobs added in August, followed by local government education, which gained 42,000 positions, mostly offsetting July's decline.

Other sectors that saw growth include manufacturing (16,000); health care (13,000), and home health service (11,000).  

Meanwhile, information and computing infrastructure providers ended the month in the red, shedding 23,000 and 8,000 jobs, respectively.  

June was revised up to 31,000 jobs, and July, originally reported as a 23,000 job loss, is now a 21,000 gain. The three-month average payroll gain now stands at 71,000, well above the 31,000 average pace over the prior 12 months.

Wage growth in August came in as expected, up 0.3% month over month, after a dismal 0.1% increase in July.

Policymakers eye next CPI report

In the wake of Friday's better-than-expected jobs report, the odds of a rate hike at the next FOMC meeting set for Sept. 15-16 gradually increased to 60.4%, according to CME FedWatch.

Last week, Fed Chair Kevin Warsh's hawkish Jackson Hole speech swung hike odds 21 percentage points in a matter of minutes, from 36% to 57%. Then on Thursday, Fed Gov. Christopher Waller's pushback toward a hold on rates pulled them back down by 13 points.

Realtor.com® senior economist Jake Krimmel says the central bank's policymakers will be keeping a watchful eye on next week's CPI print, which will provide them with the decisive number before the FOMC meeting.

For the housing market, Krimmel says while today's jobs report is "genuinely good," he does not expect it to meaningfully move the needle on demand on its own.

"The median homebuyer or seller right now likely is not concerned about unemployment or median earnings growth stats," points out the economist. "Instead, they are watching mortgage rates, prices, and whether to get off the sidelines or re-price their home if they’re already in the market."

August's housing data showed a summer market going out with a whimper, with pending sales growth turning negative for the first time since last November, and mortgage rates climbing to a 13-month high of 6.71% this week.

The fall market is largely anticipated to follow summer's pattern of softening as mortgage rates continue to trend up.

"If today's report ends up mattering for housing at all, it will be through the Fed and mortgage rates, not through some more direct channel like wage growth," says Krimmel. "And even that channel may be muted this time. The Fed's attention right now is almost entirely on inflation—not the labor market; and bond markets are just as focused on inflation, the fiscal picture, and geopolitics as they are on any single jobs number."

Upcoming inflation data through the fall will set the stage for next year's mortgage rates, just as buyers and sellers begin planning their next moves.