US Job Growth Surges in August, Raising Fed Rate Hike Bets

Labor Market Momentum Defies Spring Deceleration

The August employment report points to a notable rebound following a period of sluggish growth. Job gains averaged 71,000 per month in the three months through August, recovering from a loss of 9,000 over the same period in 2025. According to data from the Labor Department, July payrolls were revised up to a rise of 21,000 from a previously reported drop of 23,000.

Economists polled by Reuters had anticipated a much more modest payroll increase of just 56,000. Estimates ahead of the report ranged from a loss of 25,000 jobs to a high-end gain of 121,000. The broader labor market momentum had decelerated earlier in the year, weighed down by oil price shocks and supply chain disruptions linked to the U.S.-led conflict with Iran.

Sector Drivers: Leisure, Hospitality, and Government Lead Gains

Service and public sector hiring drove the bulk of the August expansion. Leisure and hospitality employment surged by 62,000 jobs, fueled primarily by a 59,000 increase at restaurants and bars. Government payrolls rebounded by 35,000, anchored by local government education which added 42,000 jobs to erase previous losses.

Other sectors recorded mixed results. Construction payrolls rose by 22,000, while manufacturing added 16,000 jobs. Professional and business services ticked up by 10,000. Conversely, the information sector shed 23,000 jobs, and financial activities lost 11,000 positions, largely within finance and insurance. Economists attribute the cuts in financial activities to the ongoing adoption of artificial intelligence for operational roles.

Healthcare employment rose by 13,000, a slower pace than the 32,000 average monthly gain seen over the prior year.

Interest Rate Hike Bets Rebound on Strong Economic Data

Financial markets quickly adjusted expectations following the employment release. CME’s FedWatch tool showed traders pricing in a roughly 62% chance of a quarter-percentage-point rate hike at the Fed’s September 15-16 meeting, up sharply from about 49% earlier in the week. Treasury yields higher and lifting the dollar against a basket of currencies.

“The American labor market is in good condition heading into the end of the year,” said Joe Brusuelas, chief economist at RSM, in statements reported by Yahoo Finance. “The data does lend support to the hawks at the Fed who are growing impatient with inflation.”

Not all market participants view a rate hike favorably. President Donald Trump pushed back against the central bank on Friday, advocating for interest rate cuts in a social media statement and criticizing high borrowing costs. Simultaneously, rising Treasury yields drove the 30-year fixed mortgage rate to a more than one-year high of 6.71% this week, according to data released Thursday by mortgage finance agency Freddie Mac.

Wage Growth and Working Hours Signal Stability

Despite the sharp increase in hiring, wage pressures remained contained. Wages grew 3.1% in the 12 months through August, cooling slightly from a 3.2% increase in July. The share of industries reporting job growth climbed to 55.6%—the highest level since December 2024—up from 52.8% in July. Meanwhile, the average workweek lengthened to 34.4 hours, marking the longest duration since March 2024.

With upcoming inflation figures set to be published in the next Consumer Price Index report, market focus remains squarely fixed on whether core price pressures will force the Federal Reserve’s hand later this month.