August hiring rebound surprises but keeps overall low-hire trend in place

Article originally posted on CoStar on September 9, 2026

U.S. hiring accelerated in August, but that headline offered a less decisive signal than the overall gain suggested.

Employers added 162,000 jobs, well above economists’ expectations, and revisions lifted the combined June and July totals by 55,000. Even so, one month does not establish a trend. The composition of hiring, lingering weakness in office-using sectors and a continued slowdown in annual wage growth point to a labor market that is stable rather than broadly strengthening.

The August gain was the strongest since March and lifted the three-month average to roughly 71,000 jobs. July’s estimate was revised from a loss of 23,000 jobs to a gain of 21,000, easing concerns raised by initial estimates.

Economists generally cautioned against reading the August surprise as evidence of a renewed hiring boom. The report instead suggests that the sharp July-to-August swing was partly due to revisions and unusual seasonal patterns.

Hiring was broad across major sectors, but the largest gains came from lower- and middle-wage industries.

Accommodation and food services added 68,000 jobs, government payrolls increased by 35,000, and private education and health services added 29,000. The rebound in local government education was widely expected after a sharp July decline. School-calendar timing appears to have complicated the seasonal adjustment, with local government education adding 42,000 jobs in August after shedding roughly 50,000 in July.

Restaurant and bar employment also rebounded sharply. Food services and drinking places added 59,000 jobs, far above the sector’s monthly average over the past year. The increase followed weakness during June and July around the World Cup period, making it difficult to separate underlying demand from event-related staffing and seasonal effects.

The gain is consistent with continued spending on discretionary services, even as broader consumer spending and retail sales show signs of softening.

Construction and manufacturing provided some support from cyclical industries, as the artificial intelligence and data center buildout continues.

Construction added 22,000 jobs, including 8,000 positions among nonresidential specialty trade contractors. Manufacturing added 16,000 jobs, led by machinery and fabricated metal products. Those gains are consistent with continued investment in structures and equipment.

Higher-paying office-using industries remained weaker. Information employment fell by 23,000, with losses in computing infrastructure and data processing, publishing and broadcasting. Financial activities lost 11,000 jobs, while professional and business services added 10,000. Professional and technical services accounted for about half of that increase. Over the past year, information and financial activities have together lost roughly 200,000 jobs, a continued headwind for office demand.

The unemployment rate held at 4.1% even as labor force participation increased to 61.6%. Employment rose by 569,000 in the household survey, and 683,000 people entered the labor force. Those figures can be volatile from month to month, but the combination of a steady unemployment rate and higher participation supports the view that the labor market remains relatively balanced. Still, the labor force has been shrinking, losing almost 70,000 since the beginning of the year, and now has 1 million fewer labor market participants than a year ago. As a result, fewer job gains are needed each month to keep the unemployment rate from rising.

Wage growth remained contained. Average hourly earnings increased 0.3% in August and 3.1% from a year earlier, the slowest annual pace in several years. Monthly growth improved from July, but the longer-term trend continued to cool. The recent surge in energy prices lifted the consumer price index above annual wage growth earlier this year after almost three years of trailing wage growth, eroding the purchasing power of households dependent on wage income. Market watchers will be keenly interested in the August inflation reading coming Friday.

Sector wage trends highlighted a strengthening goods-producing sector. Average hourly earnings rose about 4% from a year earlier in goods-producing industries, including roughly 4.2% in construction. Wage growth in private service-providing industries was closer to 2.9%, while professional and business services increased about 2.4%.

The mix of relatively strong hiring in lower-wage services and weakness in several higher-paying industries helps explain why the employment rebound did not produce a comparable acceleration in overall wage growth.

Aggregate payroll growth tells a similar story. The payroll index, which combines employment, hours and hourly earnings for nonsupervisory workers, increased about 6.6% over the past year in private goods-producing industries. Growth in service-providing payrolls was closer to 4%, while total private payrolls increased by around 4.3%.

Slower annual wage growth and continued weakness in office-using industries argue against treating the latest employment report as inflationary, easing the potential conflict faced by Federal Reserve policymakers in addressing each of its mandates.

Working against their options, though, are the additional tariffs on Canadian goods entering the country and the retaliatory response from one of our largest trading partners. Economists still expect to see further pass-through of tariffs already levied onto the prices of consumer goods. More of the same is unlikely to be helpful in the battle against inflation.