Executive summary
U.S. payrolls surprised to upside – adding 162,000 in August, nearly three times higher than the consensus expectation of 55,000. Moreover, the July tally was revised upward, flipping to a gain of 21,000 from -23,000. That almost doubled the six-month average to 106,500 from the prior pace.
The details remained mixed. Monthly wage growth rose, but the year-over-year pace fell to its lowest since 2021. Meanwhile, the average workweek rose and the unemployment rate was unchanged (at 4.1%). Also, some of the industry-level hiring—such as restaurants & bars and education within local government—appeared to be out-of-step with historical trends.
This report underscores the inconsistency in month-to-month job growth witnessed over the past three years. It also reflects the ‘one foot on the gas, one foot on the brake’ dynamics within the U.S. economy we’ve been chirping about this year. With respect to the Federal Reserve (Fed), our view remains that policymakers will likely stay on hold in the near term. That said, there’s a lot more data – including another round of the key inflation metrics – ahead of the next rate decision on September 16th.
Payroll trends – Blowout restaurant & bar hiring
Service-providing industries hired 86,000, while goods producers added 41,000 workers. Private payrolls rose by 127,000, yanking the six-month average up to 106,200 from 60,300 (after revisions).
A review of the major industry trends
The two biggest outliers were restaurants & bars and local education jobs within government, both of which added workers at the fastest pace in several years.
Within leisure & hospitality, restaurants & bars added 59,200 workers in August, the most since January 2023. In the past year, this sub-industry has hired just 12,000 on average and has been marked by losses four times. It’s especially puzzling given the tepid hiring during the spring and early summer during the World Cup.
Government hired 35,000 positions, which were entirely local education, which added 42,000. That’s the most in four years, which is highly unusual for August. For the past 20 years (2006-2025), the August average was 9,000 new local educational positions, including just 1,200 over the past four years. Excluding local education, the rest of government (federal, state, and local non-education) shed 7,000 workers in August.
Meanwhile, several of the major industries were significantly off their 24-month averages. For instance, construction hired 22,000 last month compared with the 24-month average of just 5,000. Conversely, the education & health services industry group was dramatically below average, adding 29,000 in August versus their two-year average of 58,000.
Jobless rate steady, while hours worked up
The unemployment rate was unchanged at 4.1% for the second month. It’s now just above the pre-pandemic 3-year average of 4.0%, which remains low compared to the historical average of 5.7% since 1948.
The broader underemployment rate (U-6) fell to 7.7% from 7.9% in July. That’s slightly below the pre-pandemic 3-year average of 7.8% and has declined sharply since hitting 8.7% in November 2025.
Yet, the labor force saw a significant increase in August of 683,000, the most in 19 months. Still, the labor force has shrunk by almost one million workers (973K), or -0.6%, in the past year.
Average weekly hours worked rose by 0.1 to 34.4, matching the highest level since February 2023. It’s also back in-line with the pre-pandemic average of 34.4. Manufacturing hours worked rose to 40.5, the highest since early 2023, while overtime hours remained steady at 3.1 for the second consecutive month.
Average hourly earnings rose by 0.3% month over month, above the pre-COVID three-year average of 0.26%. Yet, the year-over-year pace for all workers slipped to 3.1%, the slowest annual pace since 2021. That’s just above the pre-pandemic average of 3.0%.
Wages for rank & file workers—officially known as production & nonsupervisory employees—also rose 0.3% during the month, but the annual pace held steady at 3.2%, which is also above the pre‑pandemic 3.0% average.
Our take
Payroll growth surprised meaningfully to the upside in August; however, it’s likely the combination of the seasonal adjustments and stronger-than-usual August hiring in our view.
To wit, we suspect that seasonal adjustments are still off kilter since being skewed by the COVID-19 shock in 2020 and the subsequent ripple effects in 2021 and 2022. Furthermore, August payrolls have traditionally been the biggest month for downside surprises, averaging job losses of 30,000 over the past 20 years.
More importantly, digging beneath the strong headline print, the details paint a more nuanced picture. Average hourly earnings accelerated on a monthly basis, but the year-over-year pace cooled to its slowest rate since 2021. The average workweek increased modestly, while the unemployment rate held steady at 4.1%. Taken together, the report reflected a labor market that remains resilient but continues to send mixed signals about its underlying momentum. Strong hiring and stable unemployment point to ongoing demand for workers, while slower wage growth suggests labor market pressures continue to ease.
And, as we noted in the review of major industry trends, the composition of job gains also raised some questions. Specifically, the unusually strong hiring by both restaurants & bars and local education.
Ultimately, the August report reinforces the same theme that has characterized the labor market for much of the past three years – inconsistency. Monthly payroll growth continues to oscillate between periods of strength and weakness, reflecting the broader dynamics evident across the U.S. economy we’ve called "one foot on the gas, one foot on the brake."
While August's stronger-than-expected gain argues against an imminent deterioration in labor conditions, the uneven sector details and moderating wage trends suggest caution is still warranted. For the Federal Reserve, the report is unlikely to materially alter the near-term outlook, and policymakers will likely remain on hold for now. However, additional economic releases, including another round of key inflation data, will be closely watched ahead of the Fed's September 16th policy decision.
Bottom Line
The August jobs report was stronger than expected, but the details remained mixed and much of the largest gains came from sectors with unusually strong and atypical hiring patterns. Overall, the report reinforces our "one foot on the gas, one foot on the brake" narrative of the economy and is unlikely to alter the Fed's patient stance in the near term in our view.
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