The labor market looks considerably healthier than it did at the start of the summer.

Why it matters: This morning's jobs report recast the last two months as a period of modest job growth rather than of outright deterioration, capped by a gain last month that was more than triple what economists expected.

• The labor market is weathering the Iran conflict and an AI-driven transformation of the economy with surprisingly little damage, at least for now.
• For the Fed, the report puts inflation even more squarely in focus — with less evidence that the labor market is too fragile to hold up in the event of higher interest rates.

What they're saying: "August turned the heat back up on the job market," Glassdoor chief economist Daniel Zhao wrote this morning.

• But Zhao noted that "the data has swung hard from month to month, and revisions keep rewriting what we thought we knew, so the underlying trend is tough to read."

Driving the news: Employers added a surprisingly strong 162,000 jobs in August, the biggest gain since March. The unemployment rate was unchanged at 4.1%.

• Paired with positive revisions to June and July numbers, the release lifts three-month average job gains to 71,000, from just 20,000.
• June and July payrolls were revised up by a combined 55,000, a revision that flipped July from a 23,000-job loss to a 21,000-job gain.

Between the lines: What looked like a labor market shedding jobs this summer now looks like one that slowed but kept expanding.

• August's headline was boosted by 42,000 jobs added in local government education, which largely reversed July's decline.
• That suggests some of the summer's apparent weakness — and August's subsequent rebound — reflected seasonal volatility rather than a sudden shift in labor demand.

Zoom in: Bars and restaurants added 59,000 jobs in August, a surprising result considering that the World Cup ended in July and that it seemed plausible there would be a falloff in the sector's employment.

• Manufacturing added another 16,000 jobs, continuing an upward trend in employment that started late last year.
• The jobs contraction in the information sector — which includes tech infrastructure, publishing and media jobs — deepened, shedding 23,000 jobs in August and 115,000 over the past year.

By the numbers: The unemployment rate held at 4.1% (though the unrounded rate edged up to 4.14% from 4.09%). The details of the household survey were promising.

• The labor force participation rate rebounded to 61.6%, reversing some of a steep two-month slide in which nearly 1 million people had exited the workforce. Still, participation remains 0.7 point below a year ago.
• The share of prime-age Americans — those aged between 25 and 54 — with a job held at 80.4% in August, still below its recent high of 80.8% in May.

What to watch: August may help clarify whether the recent hiring slowdown reflected fewer workers available or less appetite among employers to hire.

• About 700,000 people entered the labor force last month and most found work, suggesting that employers were able to absorb a sudden influx of workers.
• That follows a stretch when a shrinking labor force kept unemployment low, obscuring whether weak hiring reflected limited worker supply or weak labor demand.

The bottom line: The risk of a sharp labor market downturn looks considerably smaller than it did a month ago.

• Still unresolved is whether hiring is accelerating again or simply settling into a slower — though still solid — equilibrium.

The solid numbers add ammunition for those Fed officials who see an urgent need to raise interest rates to bring inflation down.

The big picture: With the labor market hovering at something near full employment but inflation in its sixth year of exceeding the Fed's 2% target, the decision of whether to raise interest rates in less than two weeks comes down to two key August inflation indicators due out next week.

• The best that can be said of the robust jobs report is that it affirms the preexisting view of the central bank's leaders that the big question now is around inflation.
• Nothing in the report would act as a caution flag for those who might seek a rate hike, and indeed the data supports the idea that the job market could even be reaccelerating.
• "August payrolls were strong across the board, including in cyclical sectors like construction and manufacturing," Sonu Varghese, global macro strategist at Carson Group, wrote in a note. "Add in elevated inflation, and the Fed looks well offsides against an economy that's running hot."

Yes, but: The jobs report has often been the most important monthly economic data release for parsing what the Fed will do next. Not now.

• The August numbers don't so much turn the overall economic narrative as affirm chairman Kevin Warsh's statement in a speech last week that "I believe the labor markets are consistent with full employment."

What's next: Next week's releases of the August Producer Price Index on Thursday and the Consumer Price Index on Friday have now taken on greater importance for interest rate decisions.

• Economists can, by combining elements of the two, come up with a quite accurate estimate of where the Fed's preferred inflation measure, the Personal Consumption Expenditures Price Index, will land when it is released Sept. 30.

The bottom line: The jobs numbers bolstered the case for a rate hike, but next week's inflation numbers are more likely to settle the decision one way or the other.