The U.S. economy added far more jobs than anyone on Wall Street expected in August, and instead of celebrating, stocks sold off Friday as traders bet the surprisingly hot labor market could push the Federal Reserve toward raising interest rates rather than cutting them.

The Bureau of Labor Statistics reported that nonfarm payrolls jumped by 162,000 in August, blowing past the roughly 53,000 gain economists polled by Dow Jones had forecast. It's more than triple the prior 12-month average monthly gain of just 31,000, a sign the labor market has more juice left than analysts believed. The unemployment rate held steady at 4.1%, with 7.0 million Americans out of work.

Wages ticked higher too: average hourly earnings rose 10 cents, or 0.3%, to $37.75, up 3.1% from a year earlier. The gains were uneven across industries. Food services and drinking places led the way with 59,000 new jobs — nearly five times their recent monthly average — while local government education added 42,000 and manufacturing added 16,000, continuing an upward trend. Health care added a comparatively modest 13,000, well off its recent pace of 32,000 a month. The information sector kept shrinking, shedding 23,000 jobs as computing infrastructure, publishing and broadcasting companies continued trimming headcount, a trend some economists have linked to AI-driven automation.

Markets Didn't Like It

Wall Street's reaction was swift and negative. The Dow Jones Industrial Average fell 271.86 points, or 0.51%, to close at 53,414.25. The S&P 500 slid 0.38% to 7,718.60, and the Nasdaq Composite dropped 0.29% to 26,506.99.

162,000 JOBS ADDED IN AUGUST — MORE THAN TRIPLE WHAT WALL STREET WAS BRACING FOR

The counterintuitive math: a red-hot jobs report is usually good news, but it complicates the Fed's calculus. Policymakers had been expected to weigh a rate cut later this month to support a cooling economy. A blowout payrolls number instead raises the odds officials could hold steady or even hike to keep a resurgent labor market from fueling inflation, according to wire service reporting on the release. Bond yields jumped on the news as traders repriced their rate-path bets.

The Fed's next policy meeting is later this month, and investors will be parsing every subsequent data point — inflation readings, retail sales, consumer confidence — for clues on which way officials lean. For now, a labor market that refuses to slow down has turned what should have been a routine Friday jobs report into a fresh headache for anyone betting on cheaper borrowing costs before year's end.