Evercore sees strong jobs data not altering Fed September call

U.S. nonfarm payrolls rose by 162,000 in August, surpassing expectations and signaling a significant recovery from the weak July reading, according to data released on Friday. The unemployment rate climbed by 5 basis points to 4.14%, while the labor force participation rate grew by 0.2 percentage points to 61.6%. The job gains were driven by a rebound in leisure and hospitality, which accounted for 62,000 positions, and local government education, adding 42,000 jobs as both sectors returned to normal after recent declines.

Healthcare and construction also demonstrated continued strength. After revisions to June and July, the three-month average of payroll growth now stands at 71,000, up from 20,000 before the report. Goldman Sachs estimates the underlying job growth rate based on the payroll and household surveys at 53,000, compared to 5,000 prior to the report.

Household employment increased by 569,000, with the labor force growing by 683,000. The labor force participation rate is now 0.5 percentage points below the January level when benchmark revisions were implemented. Evercore stated that the payroll gains bolster confidence in the labor side of the economy being able to withstand a potential Federal Reserve rate hike, but these gains are not a game-changer for the September rate decision.

The focus next week will remain on inflation data, which will still determine whether the Fed decides to hold or hike rates. However, sustained employment strength could have a stronger impact on Fed policy decisions on a more long-term horizon, such as a potential December decision. This third consecutive day of key labor market releases, following Tuesday's JOLTS data and Wednesday's ADP private employment tally for August, underscores the labor market's importance in shaping Federal Reserve policy.