The US economy added 162,000 jobs in August, well above the +56K expected, according to the non-farm payrolls report. The prior month's figure of -23K was revised up to +21K, with a two-month net revision of +55K. June came in at +57K.

The unemployment rate held at 4.1%, matching expectations and the prior reading. The unrounded unemployment rate ticked up to 4.1413% from 4.0900%. The participation rate rose to 61.6% from 61.4%, while the U6 underemployment rate fell to 7.7% from 7.9%.

Average hourly earnings rose 0.3% month-over-month, in line with expectations, and were up 3.1% year-over-year versus 3.0% expected. Average weekly hours came in at 34.4 against 34.3 expected. The year-over-year earnings figure is one the Federal Reserve watches closely as a gauge of wage-driven inflation pressure, and the slight upside surprise here reinforced the firm tone of the report.

Private payrolls increased by 127K, well above the +45K forecast; the prior reading of +30K was revised to +71K. Manufacturing payrolls rose 16K versus +5K expected. Government payrolls added 35K after a -53K reading previously.

Ahead of the release, fed funds futures were pricing in a 50% chance of a September rate hike and 32 basis points of hikes this year. USD/JPY was trading at 156.13 and S&P 500 futures were up 2 points.

The report was strong on the headline and prompted a significant US dollar bid. The jump in participation marked a reversal of the recent trend and was what kept the unemployment rate at 4.1% rather than lower. A rising participation rate is generally read as a sign that people who had been on the sidelines of the labor market are re-entering the workforce, expanding the pool of available workers.

EUR/USD quickly fell to 1.1591 from 1.1623, but the clearest market reaction came in fixed income, where US 2-year yields rose 7 basis points to 4.40% — a sign the market viewed the data as inflationary. Two-year Treasury yields are particularly sensitive to expectations for near-term Fed policy moves, which is why the move there was more pronounced than in currency pairs.

By sector, education jobs are seasonally tricky at this time of year; the category posted +34K, offsetting a -58K reading in July. Leisure and hospitality rose 62K, overwhelmingly led by food services and drinking places. Healthcare and social assistance added 28.4K, a notable change.

On the AI-related side, construction posted a solid gain of 22K, while IT-related categories declined: computing infrastructure/data processing fell 7.7K, publishing dropped 6.7K, broadcasting/content lost 5.0K, and telecom shed 2.1K.

The 162K headline figure is less impressive on closer inspection: roughly 34K came from education — particularly a reversal in local-government schools — and another 59K came from restaurants and bars. Those two areas alone account for about 93K of the 162K total. Both categories are lower-paying and subject to sizable seasonal-adjustment swings, meaning the underlying pace of job growth was softer than the headline suggests. Whether the stronger participation trend and the sector mix persist will be visible in the September payrolls report and the Fed's next policy decision.

Source: ForexLive