US Jobs Report Preview: Can Weak Payrolls Kill September Rate Hike Bets?

Key Takeaways

• US nonfarm payrolls are expected to increase by around 56,000 in August after falling by 23,000 in July.
• The unemployment rate is forecast to remain at 4.1%, while annual wage growth could slow from 3.2% to 3.0%.
• A weaker report could reduce expectations for a September Federal Reserve rate hike, while stronger employment and wage figures may revive tightening bets.

US Jobs Report Takes Centre Stage Ahead of Fed Meeting

The August US employment report will be released on Friday, September 4, at 8:30 a.m. Eastern Time, placing nonfarm payrolls, unemployment and wage growth at the centre of market attention ahead of the Federal Reserve’s September meeting.

The US economy is expected to have added approximately 56,000 jobs in August, recovering from the unexpected loss of 23,000 positions in July. Forecasts remain unusually wide, ranging from another decline of 25,000 jobs to an increase of 121,000, highlighting the uncertainty surrounding the current state of the labour market.

A separate estimate places the consensus closer to 65,000. Although either result would represent a monthly improvement, employment growth would remain weak compared with the pace recorded earlier in the economic cycle.

The unemployment rate is forecast to remain at 4.1%, although some projections point to an increase to 4.2%. Average hourly earnings growth is expected to slow to 3.0% year over year from 3.2% in July, potentially easing concerns that the labour market is contributing to persistent inflation.

Seasonal Rebound Could Lift August Payrolls

source: tradingeconomics

Part of the expected payroll recovery may reflect the reversal of temporary factors that weighed on July’s figures.

Local government education employment declined by 49,600 positions in July. Seasonal adjustment difficulties commonly affect education employment during the summer, creating the possibility of a rebound in August.

Leisure and hospitality could also contribute positively after losing jobs for two consecutive months. Construction employment has remained comparatively resilient, supported partly by infrastructure investment and data centre development.

However, immigration policy changes may offset some of these gains. The termination of Temporary Protected Status for Haitian immigrants affected the employment authorisation of a significant number of workers during August.

One estimate suggests the change could subtract approximately 15,000 jobs from the report, with healthcare, caregiving, hospitality and other labour-intensive service industries potentially experiencing the largest impact. The eventual effect remains difficult to measure because some workers may obtain alternative immigration status.

Private Hiring Data Signal Continued Weakness

Employment indicators released ahead of the official report have generally pointed to subdued hiring.

Private-sector employment increased by only 38,000 positions in August, below expectations and down from a revised gain of 46,000 in July. It was the weakest pace of private job creation since January.

Education and healthcare added 45,000 jobs, while leisure and hospitality gained 16,000 and construction added 12,000. These increases were partially offset by losses of 17,000 manufacturing positions and 16,000 professional and business services jobs.

Small businesses added only 3,000 workers, while medium-sized employers recorded no net employment growth. Large companies accounted for nearly all the increase, adding 34,000 positions.

The US services sector continued to expand in August, supported by stronger new orders. However, its employment component remained in contraction for a second consecutive month, suggesting that improving demand has not yet encouraged businesses to accelerate recruitment.

The latest Job Openings and Labor Turnover Survey presented a similar picture. Job openings remained at approximately 7.3 million in July, but gross hiring fell to fewer than 5.1 million. Hiring in professional and business services declined by 188,000.

Low Layoffs Keep Unemployment Under Control

While recruitment has slowed, employers have not yet moved towards widespread dismissals.

Initial unemployment claims increased slightly to 206,000 in the latest reporting week, while continuing claims rose to almost 1.78 million. Both measures remain relatively low by historical standards.

US employers announced 52,881 planned job cuts in August, up 58% from July. However, the total was still 38% lower than in August 2025 and represented the lowest August figure since 2022.

The combination of weak hiring and limited layoffs has created a labour market in which existing workers generally remain employed, while jobseekers face fewer opportunities.

A shrinking labour supply may also be keeping the unemployment rate low. Reduced immigration, lower population growth and the retirement of older workers have decreased the number of jobs required each month to prevent unemployment from rising.

Estimates place the current break-even pace of job creation between zero and 50,000 jobs per month. As a result, an August payroll increase near the consensus forecast may be sufficient to stabilise unemployment even though it would appear weak by historical standards.

Wage Growth Could Shape the Fed Reaction

The employment report arrives less than two weeks before the Federal Reserve’s September 15–16 policy meeting.

Financial markets currently assign approximately a 50% probability to a September interest-rate increase, down from more than 63% earlier in the week. Expectations eased after Fed officials indicated that rates could remain unchanged if incoming data confirmed that inflation pressures were moderating.

The payroll figure alone may not determine the decision. Wage growth could carry greater significance because it provides a clearer indication of whether labour costs are maintaining inflationary pressure.

A report showing more than 100,000 new jobs, unemployment at 4.1% or lower and annual wage growth above 3.2% could strengthen the case for another rate increase.

By contrast, another decline in employment, an unemployment rate of 4.3% or higher and slower earnings growth could weaken tightening expectations and raise concerns that high borrowing costs are placing greater pressure on the economy.

A result close to expectations may leave the Fed outlook largely unchanged. In that scenario, the August consumer price index report would probably become the more important catalyst for the September decision.

Gold and US Dollar Brace for Payroll Volatility

Gold traded near the psychologically important $4,500 level ahead of the report, while the 10-year US Treasury yield remained close to 4.77%.

Stronger employment and wage figures could lift Treasury yields and the US dollar as investors price in a higher probability of another interest-rate increase. Rising yields may place short-term pressure on gold because they increase the opportunity cost of holding non-yielding assets.

A weaker report could produce the opposite reaction. Lower rate expectations may weigh on the dollar and Treasury yields while providing support for gold.

However, the market response may be complicated by elevated oil prices and geopolitical uncertainty. Even if employment growth disappoints, persistent energy-driven inflation could prevent investors from fully abandoning expectations for tighter monetary policy.

Equity markets may initially welcome moderately weaker data if it reduces the risk of a rate hike. A severe employment contraction, however, could shift attention towards slowing economic growth and weaker corporate earnings.

What to Watch Beyond the Headline Payroll Number

Revisions to previous employment figures will be one of the most important details in the report. Further downward revisions to June and July could indicate that the labour market weakened earlier and more sharply than initially reported.

The unemployment rate, labour-force participation, average hourly earnings and the distribution of hiring across industries will also influence the market response.

The clearest signal against a September rate hike would be weak payroll growth combined with rising unemployment and slower wages. Strong job creation and accelerating earnings would support a more hawkish interpretation.

Mixed figures may create an initial period of volatility without delivering a clear policy signal, leaving next week’s US inflation report as the decisive test for markets.