Preview: Due September 4 - U.S. August Employment (Non-Farm Payrolls) - Corrections from recent payroll weakness and unemployment declines
We expect August’s non-farm payroll to rise by 75k both overall and in the private sector, still moderate but the strongest in both series since April. We however expect unemployment to correct higher to 4.2% after falling to 4.1% in July from 4.2% in June and before that three straight months at 4.3%. We expect a 0.2% increase in average hourly earnings, where trend has slowed in recent months.
July’s non-farm payroll saw a decline of 23k, with two prominent negatives. Leisure and hospitality fell by 40k after a 43k decline in July, which erased a 42k increase in June. Government fell by 53k, mostly on a 50k decline in local government education work.
Leisure and hospitality is volatile with recent weakness possibly reflecting labor shortages in the peak hiring season in the summer. We expect a correction higher of 15k in August, though seasonal demand may still exceed supply leaving significant uncertainty. Government is volatile in July, when schools close for the summer, and September when they reopen, but less so in August. We see no change in government this month.
Our forecast for private payrolls excluding leisure and hospitality of 65k is marginally below 70k seen in July and 73k seen in August. Our forecast for overall payrolls is also in line with both the three and six month averages seen in June, though July’s at 20k and 44k respectively were significantly weaker. Initial claims do not suggest any significant change in trend, stabilizing after rising in June and falling in July, which contrasted a weak July payroll outcome.
Education and health, the key driver of most recent payroll growth (largely on health) has seen trend slowing. We expect a 35k increase in August, in line with the six month average in the sector, which has slowed from around 80k in early 2025. Retail may pick up from a weak 19k July decline but construction will struggle to match a 22k July rise. Manufacturing is likely to look healthy with a rise of 10k.
While the last two payroll releases were soft, unemployment fell by 0.1% in both months, suggesting slow employment growth may have been due to supply shortages. Still, the scale of recent labor force declines, by 720k in June and 264k in July, looks somewhat erratic, and we expect a correction higher of 275k in August, lifting unemployment to 4.2%. While there is no strong seasonal pattern, August 2025 saw an above trend labor force increase, of 338k. We expect a rise in participation to 61.5% from 61.4%, which would be the first increase since October 2025 reached 62.6%, while remaining below the 61.8% seen in April and May.
We expect a 0.2% rise in average hourly earnings, 0.21% before rounding. This would be in line with recent trend, with March, April and May all up by 0.2%, before a 0.3% rise in June and a 0.1% rise in July. A move to 0.2% per month in trend represents a slowing from around 0.3% seen at the start of the year, when yr/yr growth was 3.7%. Our August forecast would see yr/yr growth fall to 2.9%, the slowest since May 2021, from 3.2% in July. That trend in average hourly earnings is slowing suggests the labor market is not tightening, arguing against recent declines in the unemployment rate being sustained.
We expect the workweek to remain at 34.3 hours for a fifth straight month, though 34.2 is more likely than 34.4, with an outcome that high not seen since early 2024. That the workweek has been steady in recent months reduces downside risk to payrolls.