US August Nonfarm Payrolls Rise 162,000, Far Exceeding Market Expectations; Prior Figures Revised Up by 55,000 as Fed September Rate Hike Odds Rise Significantly

TradingKey - On September 4, US Eastern Time, the latest data released by the US Department of Labor showed that US nonfarm payrolls in August far exceeded expectations, increasing by 162,000, while prior figures were revised up by a combined 55,000.

Specifically, US nonfarm payrolls added 162,000 jobs in August, far higher than the market expectation of 56,000. Meanwhile, the nonfarm payroll figure for June was revised up from 20,000 to 31,000, and July was revised up from a previous contraction of 23,000 to an increase of 21,000. Following these revisions, combined job growth for June and July was 55,000 higher than previously reported.

The unemployment rate remained at 4.1%, flat from July. The labor force participation rate edged up to 61.6%, but remained 0.5 percentage points lower than in January this year. Regarding wages, average hourly earnings rose 0.3% month-over-month and 3.1% year-over-year in August, reflecting overall moderate wage growth.

BLS data showed that job growth in August was primarily driven by food services and drinking places, as well as local government education, with employment in manufacturing and healthcare also expanding. Meanwhile, information sector jobs declined, indicating that while employment data improved markedly from July, divergence across industries persists.

Prior to the nonfarm payrolls report, previously released ADP data showed the private sector added only 38,000 jobs in August, well below expectations of 48,000. The wide discrepancy stems in part from ADP covering only the private sector, whereas the official nonfarm payrolls include government hiring (local government education added 42,000 jobs in August), making this nonfarm outcome all the more impactful.

Following the data release, financial markets reacted swiftly. As of press time, spot gold fell sharply by more than $80 in the short term, dropping below $4,400 per ounce, with a daily decline of 1.88%; spot silver dropped $1.8 in the short term to trade at $65.17 per ounce. The US Dollar Index (DXY) briefly surged 34 pips to reach 99.36.

[Source: TradingView]

Strong employment data reinforced market bets on a Fed rate hike in September, putting pressure on rate-sensitive assets such as gold and silver.

Previously, Fed Governor Christopher Waller stated that if inflation continued to cool, he would lean toward supporting keeping interest rates unchanged at the September meeting. Influenced by his remarks, market expectations for a September rate hike had once fallen to around 50%.

However, following the release of August nonfarm payrolls data, traders quickly ramped up bets on a September rate hike, with market pricing showing the probability rising back above 60% at one point. The strong jobs report may reignite market expectations for a Fed rate hike in September.

However, a single month of employment data remains insufficient to determine the Fed's policy trajectory on its own. Waller had previously made clear that his policy assessment would be heavily influenced by August inflation data, making upcoming CPI figures a crucial basis for gauging the September interest rate decision.

US August CPI data will be released on September 11, while the Fed will hold its FOMC meeting on September 15–16. Inflation performance, alongside employment data, will jointly shape market expectations for the September rate decision.

Overall, August nonfarm payrolls increased by 162,000, far exceeding the market expectation of 56,000, while June and July figures received a combined upward revision of 55,000, indicating that the previously reported labor market weakness has abated somewhat.

Meanwhile, the robust jobs report has once again pushed up market bets on a September rate hike, though whether a hike materializes remains contingent on upcoming inflation data. Markets will continue to closely watch the August CPI for further clues on the Fed's policy stance in September.