Labor market bounces back

The US employment rebound strengthens the case for a September Fed rate hike even as wage inflation continues to ease.

• US nonfarm payrolls rose by 162,000 in August versus 55,000 expected, while June and July were revised up by a combined 55,000; six-month average gains reached nearly 107,000, compared with less than 10,000 per month in 2025.
• Private payrolls increased by 127,000 in August versus 50,000 expected, and averaged 106,000 over the past six months, compared with less than 25,000 per month during 2025.
• The unemployment rate held at a one-year low of 4.1%, U-6 fell to 7.7%, labor-force participation rose to 61.6%, and civilian labor-force participation increased by 683,000 in August.
• Average hourly earnings growth slowed to a five-year low of 3.1% year over year, while the consensus expects core CPI inflation to decline from 2.9% in May 2026 to 2.4% in August; average weekly hours rose to a two-year high of 34.4.
• Other indicators were mixed but generally resilient: initial jobless claims averaged 207,000 in August, job openings reached 7.27 million in July, and the ratio of openings to unemployed workers edged up to 1.05, although the quits rate fell to a six-year low of 1.9%.

Takeaway: The stronger payroll report lifted the implied probability of a 25-basis-point Fed hike in September to 61% and pressured equities, but investors still need the upcoming August inflation data to assess whether the labor-market strength will translate into tighter policy.