Strong August employment revives case for Fed hike, TS Lombard says

The U.S. job market experienced a strong rebound in August, with employers adding a notable 162,000 jobs, according to the Labor Department's monthly report. The unemployment rate remained at a low 4.1 percent. This positive news could benefit President Donald Trump as he approaches the midterm elections, where economic conditions will be a key concern for voters.

The jobs report exceeded expectations, with hiring surpassing the 65,000 jobs anticipated by FactSet analysts. Revisions to previous months' data also indicated a significant increase in payrolls for June and July, adding 55,000 jobs each. July saw employers creating 21,000 jobs, a revision from the original 23,000 reported by the Labor Department.

The restaurant and bar industry added 59,000 jobs, while construction and manufacturing created 22,000 and 16,000 jobs, respectively. Factory employment has risen by 58,000 since December when it hit a recent low. Since the start of the year, employers have added an average of over 80,000 jobs per month, a substantial improvement from the 9,700 jobs added in the same period last year.

However, hiring still falls short of the 166,000 monthly jobs seen during the 2021-2022 hiring boom that followed the pandemic lockdowns. The U.S. labor force expanded by 683,000 last month, up from declines in June and July. Despite these gains, many households continue to face challenges due to the high cost of living, and wage growth remains modest.

Average hourly wages increased by 3.1 percent from a year earlier, the weakest annual rise since May 2021. The report may influence the Federal Reserve's decision on whether to raise its key short-term interest rate during their meeting on September 15-16. Fed Chair Kevin Warsh indicated that inflation, currently at 3.7 percent according to the Fed's preferred measure, remains above the central bank's 2 percent target, and further progress is needed to alleviate the situation.