What happened: The US labor market added 187,000 total nonfarm payroll jobs in August and annual employment growth slowed to 2% from 2.1% in July and 3.3% at the start of the year. The unemployment rate increased to 3.8% from 3.5% in July. Annual growth in average hourly earnings fell to 4.3% in August, from 4.4% in July.

What it means: Employment increased more than expected in August partly due to prior month revisions. The prior month downward revisions also bring the three month average gain to just 150,000 jobs down from 238,000 in the preceding three months and 312,000 in the first three months of the year. The labor market is cooling and wage growth is moderating.

What Zillow Senior Economist Orphe Divounguy thinks: On one hand, a strong labor market and high wage growth is good for home buying activity. On the other hand, if wage growth and core inflation remain stubbornly high, mortgage rates could remain elevated, along with the potential for more Federal Reserve rate hikes.

We’re seeing monthly employment growth returning to its pre-pandemic pace and wage growth is moderating due to a combination of cooling labor demand as well as an increase in labor force participation. 

The largest job gains came in health care and social assistance, leisure and hospitality and construction. The sustained increase in construction employment is good news since it partly reflects continued new building – especially in the residential space and some increases in infrastructure spending. So long as demand continues to outpace supply, builders have a strong incentive to build – which is good news for potential home buyers and the housing market as a whole.

Today’s report should be good news for the battle to bring down inflation. However, fiscal policy tailwinds could cause the Fed to remain cautious and with recession risk receding, rate cuts are unlikely. Since traders still anticipated rate cuts in 2024, longer-term Treasury yields and mortgage rates could still increase.

The yield on the 10-year Treasury, which mortgage rates often follow, increased on the news.

Numbers to know: 

• In August, nonfarm employment increased by 187,000 jobs. August’s higher-than-expected monthly increase comes after downward revisions totalling 110,000 jobs to prior months.
• The unemployment rate increased to 3.8% in August up from 3.5% in July.
• Hourly earnings are up 4.3% year over year, compared to 4.4% in July.