U.S. Payrolls Seen Rebounding in August as Labor Market Stays Soft

U.S. payroll growth is expected to have recovered in August as local government education employment rebounded, although job losses linked to changes in immigration protections could limit overall gains.

Economists surveyed by Reuters forecast nonfarm payrolls increased by 56,000 jobs in August after falling by 23,000 in July. Estimates range from a decline of 25,000 to a gain of 121,000. The unemployment rate is expected to remain at 4.1%.

The U.S. labor market remains in what economists describe as a “slow hire, slow fire” environment. Employment momentum has weakened since a strong spring amid higher oil prices, supply-chain disruptions related to the U.S.-led conflict with Iran and lingering effects from President Donald Trump’s 2025 import tariffs.

One potential boost could come from local government education, which shed 49,600 jobs in July. Economists expect much of that decline to reverse in August. Leisure and hospitality employment could also recover after two consecutive months of job losses.

However, the termination of Temporary Protected Status for hundreds of thousands of Haitian immigrants could weigh on payrolls as affected workers lose employment authorization. Morgan Stanley chief economist Michael Gapen estimates the change could reduce August payrolls by around 15,000 jobs, although the impact could be larger. Healthcare and caregiving are among the labor-intensive industries likely to feel the effects.

Stricter immigration policies and increased retirements have reduced U.S. labor supply, lowering the number of new jobs needed each month to prevent unemployment from rising. Economists now estimate that break-even employment growth could be between zero and 50,000 jobs monthly.

Average annual wage growth is expected to slow to 3.0% from 3.2% in July, suggesting the labor market is generating limited inflation pressure.

The August jobs report is unlikely by itself to determine the Federal Reserve’s September 15-16 interest rate decision, with investors also awaiting next week’s Consumer Price Index data. Fed Governor Christopher Waller said Thursday he could support holding rates steady if inflation continues cooling.

Markets currently price a 50% probability of a September rate hike, down from 63.2% a day earlier. Meanwhile, elevated Treasury yields have pushed the average 30-year fixed mortgage rate to 6.71%, adding further pressure to the U.S. housing market.