August U.S. Payrolls Beat Expectations by a Wide Margin, Bringing Rate Hikes Back into Focus

At 20:30 Beijing time on September 4, the U.S. Bureau of Labor Statistics released the August employment report. Nonfarm payrolls rose by 162,000, far above the market's expectation of 55,000.

A Sharp Reversal in Employment Data

July's report briefly led markets to believe employment was collapsing: payrolls fell by 23,000, and average monthly gains over the preceding year were only a little above 30,000. Then August delivered an increase of 162,000. July's decline of 23,000 was revised to a gain of 21,000, while June's gain of 20,000 was revised to 31,000. The two months were revised up by a combined 55,000. The supposed collapse now looked more like an apparent stumble amplified by seasonal factors.

Why Do Markets Fear Better Employment Data?

After the release, markets came under pressure together. The probability of a September hike rose from about 50% beforehand to 58% on CME figures. The two-year Treasury yield—particularly sensitive to rate expectations—rose to 4.416%, its highest since January 2025. Spot gold fell 1.96% and briefly dropped below $4,400, while the dollar index rose 0.5%.

The transmission chain was straightforward: stronger employment led to bets on a hike, which pushed rates higher, put pressure on non-interest-bearing gold, and repriced assets with long duration.

Look Behind the 162,000 Jobs

Restaurants and bars, within the broader leisure and hospitality category, contributed most to August's increase, adding 59,000 jobs. That compares with a monthly average of only 12,000 over the previous year, making it look more like a one-off summer rebound. A strong monthly recovery does not establish a trend; September's data will be needed.

Health care added just 13,000 jobs, well below its monthly average of 32,000 over the preceding year.

Information employment fell by 23,000, including declines of 7,000 in publishing and 8,000 in data processing, potentially reflecting pressures from structural adjustment.

More importantly, hourly earnings rose by 3.1% year on year, the slowest growth since the pandemic and already below July's 3.4% rise in prices. Employment recovered, but wages were not out of control. That could give the Fed a reason to wait a little longer.

Next Thursday Is the Real Test for a Hike

Payrolls are only the opening act. August CPI, to be released at 20:30 Beijing time on September 11, is the final piece of the inflation picture before the September 15–16 policy meeting. July's CPI inflation stayed unchanged at 3.4% year on year, leaving the question to August: a further decline would reduce the probability of a hike; a rebound to 3.6% would make a hike close to certain.

Three Signals to Watch Next

1. Whether the probability of a hike can stay near 60%.

2. Whether August CPI falls or rebounds.

3. Whether the two-year Treasury yield continues to set new highs.

The inflation question is still unresolved. We will continue to watch.