The labor market was in far better shape in August than experts had forecasted. Not only did the headline on the monthly jobs report show 162,000 jobs were added and the unemployment rate remained low, but a deep dive into the report shows a much stronger economy than the headline alone would suggest.
For example, more than half a million Americans got off the sidelines and entered (or reentered in many cases) the labor market. Because nearly all of them got jobs last month, the unemployment rate remained unchanged at a historically low 4.1 percent.
With hundreds of thousands of people back to work, the labor force participation rate and employment-to-population ratio both rose to their highest levels since May. That’s a welcome reversal. These two metrics have been declining for years and have never recovered to their pre-pandemic levels from early 2020.
But why did the headline of the jobs report say only 162,000 jobs were created if employment roared higher by 569,000? It’s because these two figures come from different surveys. The number of payrolls (jobs) comes from a survey of businesses, while the number of people employed comes from a survey of households.
Additionally, the two surveys don’t measure exactly the same thing, and each one excludes certain types of jobs or kinds of employment. Regardless, the two metrics tend to track very well over time, and the sharp turnaround in employment is hopefully the start of the labor market strengthening.
Several details in the report point to exactly that. Manufacturing and construction, highly cyclical portions of overall job growth, have picked up. Their cyclical nature means that growth or contraction in these areas tends to signal growth or contraction in the overall economy. In August, annual construction growth was the highest since March 2025 and manufacturing since July 2023.
The manufacturing sector in particular is noteworthy because it seems to have arrested its three-year slide, a contraction that started at the beginning of 2023. It’s no coincidence that purchasing manager indexes and regional Federal Reserve bank surveys also point to a manufacturing recession beginning around that time but now being over.
Likewise, the economy stopped hemorrhaging full-time jobs in August, and all net-job growth came from full-time work while part-time jobs declined. The addition of almost three-quarters of a million full-time jobs pushed this category of work to the highest level since March, erasing the last several months of losses.
More people working full-time also helped push up the average workweek to its highest level in more than four years. Additionally, as Americans replace part-time jobs with full-time ones, they’re much more likely to be paid more and receive benefits.
And unlike the second half of the Biden administration when a disproportionate amount of job growth was coming from government, August saw another decline in the number of federal bureaucrats. The Trump administration has cut more than 10 percent of the federal workforce, which is now the smallest in six decades. That means all net job growth is coming from the productive private sector.
The American labor market has been surprisingly resilient this year, despite higher energy prices from the Iran war. It even appears to be accelerating. One reason is because we’ve been dipping heavily into global oil reserves, like the Strategic Petroleum Reserve here in the U.S.
But the American economy also has tremendous tailwinds because of the Trump administration’s tax and regulatory reform. No taxes on tips and overtime are powerful pro-growth and pro-work incentives. Full expensing on investment is fueling a construction boom, led by data centers which have created tens of thousands of jobs.
Then there’s the unsung hero of deregulation. The Trump administration has eliminated more than 120 rules for each new one imposed, thereby cutting miles of bureaucratic red tape that was holding back business investment and hiring.
These tailwinds are poised to accelerate the American labor market to even faster growth if the Iran war is resolved soon and the headwind of high energy prices dies down. Of course, Congress could supercharge that growth by simple measures like enacting the proposed DOGE cuts, but let’s not hold our breath.
E.J. Antoni, Ph.D., is chief economist and the Richard Aster fellow at the Heritage Foundation and a senior fellow at Unleash Prosperity.