By Lucia Mutikani
WASHINGTON, Sept 4 (Reuters) – U.S. job growth accelerated sharply in August while the unemployment rate held steady at 4.1%, suggesting an improvement in the labor market after recent struggles, keeping an interest rate hike from the Federal Reserve this month on the table.
The larger-than-expected increase in nonfarm payrolls last month reported by the Labor Department in its closely watched employment report on Friday reflected a rebound in leisure and hospitality employment following two straight monthly declines, as well as a reversal of the drag from local government education.
The unemployment rate was unchanged despite the labor force increasing by 683,000, adding another layer of strength to the report. Financial markets boosted rate hike bets for the U.S. central bank’s September meeting. The odds had been dialed back after Fed Governor Christopher Waller said at a Reuters NEXT Newsmaker event on Thursday that he was inclined to argue in favor of keeping rates steady if upcoming data confirmed inflation pressures were cooling.
“Even the most committed dove would struggle to find anything in the August employment report to justify keeping interest rates unchanged, with the surge in payrolls driven by strength across the non-health private sectors and the unemployment rate unchanged despite a big rebound in participation,” said Stephen Brown, chief North America economist at Capital Economics.
Nonfarm payrolls surged by 162,000 jobs last month after an upwardly revised rise of 21,000 in July, the Labor Department’s Bureau of Labor Statistics said. Economists polled by Reuters had forecast payrolls would increase by 56,000 after a previously reported drop of 23,000 in July.
Estimates ranged from as low as a loss of 25,000 jobs to as high as a gain of 121,000. Labor market momentum had decelerated after surging in the spring, partly blamed on the oil price shock and supply chain strains from the U.S.-led war with Iran.
Leisure and hospitality employment surged 62,000, with payrolls at restaurants and bars increasing by 59,000 jobs. Local government education added 42,000 jobs, reversing a decrease in the prior month. Manufacturing payrolls increased 16,000.
Healthcare employment rose 13,000. That was, however, slower than the average monthly gain of 32,000 over the last year, and could reflect the revocation of Temporary Protected Status for hundreds of thousands of Haitian immigrants, which impacted their work permits. Construction payrolls increased 22,000.
Short-term interest-rate futures prices implied about a 65% chance of a rate increase at the Fed’s September 15-16 meeting, up from about 55% before the employment report. U.S. Treasury yields rose. The dollar gained versus a basket of currencies.
Concerns about inflation and lack of forward guidance from the Fed have helped to boost U.S. Treasury yields, which economists see as a problem for the central bank.
Rising yields drove the 30-year fixed mortgage rate to a more than one-year high of 6.71% this week, data from mortgage finance agency Freddie Mac showed on Thursday, which could further undermine a struggling housing market.
“Ironically, a rate hike may generate less market volatility than another meeting in which policymakers choose to stand pat,” said Jeffrey Roach, chief economist at LPL Financial.
(Reporting by Lucia Mutikani; Editing by Paul Simao and Andrea Ricci )
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