(Reuters) - U.S. job growth accelerated in August, with wages notching their largest annual increase in nine years, strengthening views the economy was so far weathering the Trump administration’s escalating trade war with China.

Job seekers line up at a job fair of an oil services giant Halliburton at the MCM Grande Fundome hotel in Odessa, Texas, U.S., July 19, 2018. REUTERS/Liz Hampton

Nonfarm payrolls surged by 201,000 jobs last month, boosted by hiring at construction sites, wholesalers and professional and business services, the Labor Department said on Friday. The unemployment rate was unchanged from July at 3.9 percent.

STORY: TABLE:

KEY POINTS:

** U.S. AUG NONFARM PAYROLLS +201,000 (CONSENSUS +191,000) VS JULY +147,000 (PREV +157,000), JUNE +208,000 (PREV +248,000)

** AUG LABOR FORCE PARTICIPATION RATE 62.7 PCT VS JULY 62.9 PCT (PREV 62.9 PCT)’

** U.S. AUG JOBLESS RATE 3.9 PCT (CONSENSUS 3.8 PCT) VS JULY 3.9 PCT (PREV 3.9 PCT)

** AUG AVERAGE HOURLY EARNINGS ALL PRIVATE WORKERS +0.4 PCT (CONS +0.2 PCT) VS JULY +0.3 PCT (PREV +0.3 PCT)

** AUG U-6 UNDEREMPLOYMENT RATE 7.4 PCT VS JULY 7.5 PCT (PREV 7.5 PCT)

** U.S. AUG PRIVATE SECTOR JOBS +204,000 (CONS +190,000), VS JULY +153,000 (PREV +170,000)

** U.S. AUG GOVERNMENT JOBS -3,000 VS JULY -6,000 (PREV -13,000)

COMMENTS:

QUINCY KROSBY, CHIEF MARKET STRATEGIST, PRUDENTIAL FINANCIAL, NEWARK, NEW JERSEY (by email)

“The August payroll report was strong and broad based, while the three-month average was a healthy 180,000 new jobs.”

“In particular, with wage growth climbing higher at 2.9 percent year over year, the S&P futures edged lower, as expectations are now gaining for a fourth, December rate hike.”

“This report is particularly interesting because August is typically a weaker month for employment gains.”

LARRY HATHEWAY, CHIEF ECONOMIST, GAM INVESTMENT MANAGEMENT, ZURICH

“The news today is average hourly earnings. There were some consensus estimates that had been dropping after ADP around the payroll number to maybe 180,000, but I wouldn’t read too much into it. The real number that people will be focusing on is the payroll number, maybe alongside the fact that the participation rate got back down to 62.7 percent, ie the market is not easing. It’s not like we’re getting convincing signs of a wave of people who are out of the market coming into it, so supply conditions are a little bit tighter and that’s being reflected in this number.

“September was absolutely baked in the cake by everybody in the marketplace. It would have taken something really surprising to deter anybody from that particular forecast, so that’s cemented by this number. The December number has always been a little bit more interesting and the expectations for 2018. The odds are going to shift a little bit more toward the December call. I would say it’s going to solidify it a bit more.”

CHRIS ZACCARELLI, CHIEF INVESTMENT OFFICER, INDEPENDENT ADVISOR ALLIANCE, CHARLOTTE, NC

“The data is becoming even more important than ever now. The Fed is looking to raise rates 3-4 times this year. The data suggests they’ll raise 4 times.

“Average hourly earnings grew faster than expected and there were more jobs created than expected … The asterisk to the fact the Fed is pushing for a fourth time is that the prior revisions are down more than the current number exceeded expectations.”

“You see the dollar get stronger, bond yields going higher. What’s really important at this is point in time is the strength of the dollar. The strong dollar is putting pressure on emerging markets. That’s going to continue to make equity investors a little more concerned and will contribute to the risk-off phase we’re going through right now. The initial reaction from the dollar and treasuries suggests a bias toward more rate hikes and a stronger dollar putting pressure on equities.”

“Emerging markets are going to be at risk as long as the dollar continues to strengthen.”

“(The decline in manufacturing jobs is) yet another cautionary sign. It could be an indication businesses are postponing plans to expand because they want to see how trade negotiations go with Canada and China. Manufacturing jobs contracted for the first time in 13 months. It’s potentially evidence businesses are taking a pause to wait and see what happens. It’s not a positive. You’re seeing an escalation in the tensions between the U.S. and china and we seem to be at an impasse with Canada.”

MARK ZANDI, CHIEF ECONOMIST, MOODY’S ANALYTICS, WEST CHESTER, PENNSYLVANIA

“This is a solid report. It reinforced the view that the Fed will raise raises at the next meeting. The numbers are consistent with a robust labor market. It’s clear that wages are accelerating. Everything is flashing green for a rate hike. I think a rate hike in December is very likely. The Fed has to hike rate at least three times next year, mostly likely four. Something has to go off the rail for it not to happen. There is a lot of fiscal stimulus running through the economy, although there are things that could happen like geopolitical uncertainties and financial turmoil. The Fed has to raise short-term rates further especially with long-term rates staying low. Usually they get some help from higher long-term yields to slow the economy, but they are not getting that. There is still a lot of global QE; you have the ECB and BOJ growing their balance sheets so you are not getting much help from overseas.”

STEVEN ENGLANDER, GLOBAL HEAD OF G10 FX RESEARCH, STANDARD CHARTERED BANK, NEW YORK

“Long-term, I don’t think it is great for the dollar. Inflation worries raise the prospect of a Fed that is a lot meaner than suggests they want to be. It is still one month’s data. If we get two months in a row of this, then all best are off in the sense that the market will start worrying about inflation; will worry about the Fed tightening on inflation concerns, not because the economy is so robust. Tightening for bad reasons not for good reasons. That would be a big negative for equities and ultimately would not be great for the dollar. Today we are seeing the knee-jerk reaction as far as the dollar to just move on rate differentials and the bond market move. Hard to see this as being good for emerging markets, but I think what President Trump does with tariffs will ultimately be a bigger driver.”

“Not a great number for equities even though the headline employment number was strong. Any number that suggests that the Fed will have to tighten out of inflation concerns, well, A) it is not priced into the equity market right now and B) for the usual sets of reasons you don’t want to think of it as an equity market positive. It brings forward the risk of cycle end. But again it is one number, and it is subject to revision and subject to being offset next month. The market won’t treat it as if it is a structural increase in inflation risk. They’ll give it maybe a 25 percent weight. If we get a second month where we get a 0.3 or 0.4 that will go up to 75 percent weight and we’ll see a really big market reaction off of that.”

LOU BRIEN, MARKET STRATEGIST, DRW TRADING, CHICAGO

“On the surface it’s the correct reaction to sell of the Treasuries because (of) the jump in wages of 4/10ths, that‘s a reasonable reaction. That was the most important bit of data in here. The jobs data has been smoothed out to be less meaningful month to month than before. The key to watch is the wages because we’re already at quite a low employment rate and we’ve already had many, many months in a row of job adds, so it’s just what happens to wages and will that pick up, and this month it appears on the surface that it has.”

“If it does this again next month and the month after that then it will have consequences for the Fed, they will most certainly not take any time off if you get wages moving up in a significant way. If this doesn’t follow through it will be forgotten in a couple of months. For as far as September it clearly keeps them on track for that.”

BRYCE DOTY, SENIOR PORTFOLIO MANAGER, SIT INVESTMENT ASSOCIATES INC, MINNEAPOLIS

“The average hourly earnings were a surprise. As wages start growing that leads to a hot labor market. It’s been disappointing for a long time now so it was kind of a surprise to see that kind of strength.... Average hourly earnings is going to stay strong. It’s gotten to the point where we’re running out of slack.”

“It’s going to steepen the curve on the long end. You’re going to see 10 and 30-year yields continue to drift higher.... With a job report like this the Fed has to keep raising rates or people are going to be afraid they’re behind the curve on inflation, all of which makes bond investors really nervous.”

JJ KINAHAN, CHIEF MARKET STRATEGIST, TD AMERITRADE, CHICAGO

“It’s a pretty good report, top line as expected, the hourly earnings up a tad. Fairly broad based in terms of creating jobs. We lost jobs in some sectors, everyone is worried that we lost some jobs in manufacturing, auto and retail but combine them and it is 14,000 jobs. It is a pretty good report overall. Healthcare, construction, great places. Transportation, we haven’t necessarily seen that in the top three in quite a while so overall it is a good report.

“Futures are down a little bit, it could be on wages for those who are afraid of rate hikes it certainly reinforces that September is almost definite and makes the December probability a little bit higher. You did see bonds react.”

MARKET REACTION:

STOCKS: Stocks lost ground, with S&P e-mini futures extending losses, down 0.3 percent, versus 0.1 percent down just before the report. BONDS: Treasury yields spiked higher, with the 10-year last at 2.9131. FOREX: The dollar index rose, last up 0.2 percent, versus flat just before the figures.