Zandi Says August's 162,000 Jobs Overstate US Economic Strength

The August jobs report that lifted September rate-hike odds to 60 percent may flatter the US labor market, Moody's Analytics Chief Economist Mark Zandi argues.

"The August jobs numbers overstate the economy's strength," Zandi said Friday on CNBC's "Fast Money," pushing back on the market's initial hawkish reading of the Labor Department data.

The report showed employers added 162,000 jobs in August, nearly triple the 65,000 consensus forecast from FactSet, while unemployment held at 4.1 percent. Revisions added 55,000 to June and July payrolls, flipping July's reported 23,000 decline into a 21,000 gain. Yet the composition complicates the picture: average hourly earnings rose just 3.1 percent from a year earlier, the weakest since May 2021, and the information industry shed 23,000 jobs as artificial intelligence displaces workers. Restaurants and bars added 59,000 jobs, construction 22,000 and manufacturers 16,000, while labor force participation ticked up to 61.6 percent from 61.4 percent.

The stakes are high because the Federal Reserve meets Sept. 15-16 with inflation at 3.7 percent on its preferred gauge, well above the 2 percent target. Fed Chair Kevin Warsh said last week the central bank may have "more work to do," and governor Christopher Waller said Thursday he would back a hike if next week's inflation data runs hot. CME FedWatch showed traders pricing a 60.4 percent probability of a September increase Friday, up from 49.4 percent a day earlier.

Zandi's skepticism echoes other economists who question whether one strong month reverses a summer of weak hiring. Employers added an average of just 38,000 jobs a month from May through July, and Jefferies chief US economist Thomas Simons called August's rebound "more of a payback from weakness over the prior three months rather than a sign of significant acceleration." ADP's private payroll gauge showed only 38,000 jobs added in August, while the BLS preliminary benchmark released last week showed 79,000 fewer jobs through March than previously estimated. Even the year-to-date average of more than 80,000 jobs a month remains roughly half the 166,000 monthly norm of 2023 and 2024, and well above last year's 9,700 monthly average.

The divergence between the headline payroll number and alternative labor market gauges matters for the policy path. If Zandi's interpretation gains traction, the market's hawkish repricing could unwind, with traders shifting back toward expectations for the Fed to hold or eventually cut rates. Stocks fell Friday as investors initially read the strong report as hawkish, with the S&P 500 dropping 0.4 percent to 7,718.60 and the Dow losing 0.5 percent to 53,414.25. The 10-year Treasury yield rose to 4.78 percent and the policy-sensitive 2-year yield climbed to 4.37 percent. Wage growth has now trailed price increases for four consecutive months, with energy prices up 14.7 percent year over year as the US conflict with Iran keeps oil elevated.

The August consumer price index, due Sept. 11, will be the decisive input. Economists expect inflation to hold at 3.4 percent, matching July's rate. If CPI comes in cooler than expected, Waller's lean toward holding rates steady could prevail despite the jobs headline. If it runs hot, the Fed may hike even as economists including Zandi argue the labor market is weaker than the payroll number suggests. Either way, the September meeting will test whether the market's initial read of the jobs report or Zandi's more cautious interpretation better reflects the economy's underlying trajectory.

This article is for informational purposes only and does not constitute investment advice.