Alright, let's get straight to the point, because what happened on Friday was something literally no one expected.
We got the last major US jobs report before the Fed meeting. Analysts were expecting around 53,000 new jobs, and the actual number came in at 162,000.
Yes, you read that right. Triple the estimate.
And you would expect Wall Street to celebrate. Instead, stocks fell and bond yields surged. In other words, the economy did well, and the markets took it badly.
Let's start from the beginning. The US economy added 162,000 jobs in August. It was the best month since March. And it beat every single forecast in the Bloomberg survey. Not most of them. Every single one.
The unemployment rate stayed at 4.1%, while analysts had expected it to rise to 4.2%.
But that's not all. Remember those two bad months we had before? Both were revised upward. July went from minus 23,000 to plus 21,000. June was revised higher too. Altogether, that's 55,000 more jobs than initially reported.
And this is where things get even more interesting. The labor force participation rate rose to 61.6%. That's the first improvement in nearly a year. We're talking about 683,000 people entering or re-entering the labor market in a single month.
What does that mean? It means unemployment stayed flat even though many more people started looking for work. And that's much more significant than it sounds.
Even the broader underemployment measure, which also counts people working part-time because they can't find something better, fell to 7.7%, its lowest level since June 2025.
Of course, there's a big "but." As one analyst put it, "The strong number, following two weak months, is probably more of a statistical phenomenon than a real economic phenomenon." In other words, there's a lot of noise in the data.
"And where did all those jobs come from?" you might be wondering.
The truth is that, for the first time in a while, the gains were spread across many sectors. Restaurants and bars added 59,000 jobs. Public education added 42,000, although the return of teachers as schools reopened played a role here. Manufacturing added 16,000, its biggest increase since 2023. And construction had its best month since January, mainly because of data center construction.
Obviously, though, not everything is rosy.
The information sector lost 23,000 jobs. And together with financial services, the two sectors considered most exposed to artificial intelligence lost a total of 34,000 jobs in a single month.
And let's mention this too. Healthcare, which had been the engine of job growth over the past year, added just 13,000 jobs, compared with an average of 32,000. That's roughly half.
Now, wages. They rose 0.3% month-over-month, to $37.75 an hour. On an annual basis, that's 3.1%, the slowest pace since 2021.
At the same time, however, average weekly hours rose to their highest level in more than two years. So people are working more and taking home more each week, even if hourly wage growth is moderate.
And now we get to the most important part. Why did the markets fall on such a strong number?
Put simply: the stronger the economy is, the fewer reasons the Fed has to cut interest rates. And the more reasons it has to raise them to fight inflation.
And look at the numbers. In a single day, the probability of a 25-basis-point rate hike rose from 50.4% to 60.2%.
Interest rates are currently at 3.50%–3.75% and haven't moved since the three cuts in 2025. Inflation has been running above the 2% target for five and a half years.
There is disagreement within the Fed, though. New Chair Kevin Warsh spoke at Jackson Hole and left the door open to a rate hike. On the other hand, Waller, Williams, and Barr are saying, "Let's wait and see." If inflation continues to ease, they would leave rates unchanged.
So the key is this week. On Thursday, we get producer prices (PPI), and on Friday, the consumer price index (CPI). That's where everything will be decided.
TS Lombard, in fact, makes a very interesting point. They say the data does not justify rapid rate hikes. But they also argue that a hike this month is necessary for Warsh's credibility. "A hike this month is a one-way street for credibility," they write. In other words, he isn't raising rates because the economy says he should. He's raising them because the market expects it.
And as if all of that wasn't enough, Trump stepped into the middle of it too. "The FED board needs to get serious, BECOME PATRIOTS for once," he wrote. He also threatened to stop trading with countries that run a surplus against the US if rates don't come down. We're talking about more than 90 countries.
