Tag: ADP

Private Sector Job Growth Slows in July, Signaling Potential Economic Shift

Posted on by slightbourne@noblecapitalmarkets.com
Key Points:
– Private payrolls increased by only 122,000 in July, below expectations and the slowest growth since January.
– Wage growth for job-stayers hit a three-year low at 4.8% year-over-year.
– The slowdown in job and wage growth aligns with the Federal Reserve’s efforts to curb inflation.

The latest ADP report on private sector employment has revealed a significant slowdown in job growth for July 2024, potentially signaling a shift in the U.S. economic landscape. According to the report, private companies added just 122,000 jobs in July, falling short of the 150,000 forecast by economists and marking the slowest growth since January. This figure represents a notable deceleration from June’s upwardly revised 155,000 job additions.

Alongside the tepid job growth, the report highlighted a continued moderation in wage increases. For employees who remained in their positions, wages rose by 4.8% compared to the previous year, the smallest increase observed since July 2021. This slowing wage growth trend could be seen as a positive development in the Federal Reserve’s ongoing battle against inflation.

ADP’s chief economist, Nela Richardson, interpreted these figures as indicative of a labor market that is aligning with the Federal Reserve’s inflation-cooling efforts. She noted that if inflation were to increase again, it likely wouldn’t be due to labor market pressures.

The job growth in July was primarily concentrated in two sectors: trade, transportation and utilities, which added 61,000 workers, and construction, contributing 39,000 jobs. Other sectors seeing modest gains included leisure and hospitality, education and health services, and other services. However, several sectors reported net losses, including professional and business services, information, and manufacturing.

Geographically, the South led job gains with 55,000 new positions, while the Midwest added just 17,000 jobs. Notably, companies with fewer than 50 employees reported a loss of 7,000 jobs, highlighting potential challenges for small businesses.

This ADP report comes ahead of the Bureau of Labor Statistics’ nonfarm payrolls report, due to be released two days later. While these reports can differ significantly, they both contribute to painting a picture of the overall employment situation in the United States.

The slowdown in both job and wage growth could have implications for the Federal Reserve’s monetary policy decisions. With inflation concerns still at the forefront, these trends might influence the Fed’s approach to interest rates in the coming months.

Additionally, the Labor Department reported that the employment cost index, a key indicator watched by Fed officials, increased by only 0.9% in the second quarter. This figure, below the previous quarter’s 1.2% and the expected 1% increase, provides further evidence of cooling labor market pressures.

As the economy continues to navigate post-pandemic recovery and inflationary pressures, these employment trends will be closely watched by policymakers, businesses, and investors alike. The interplay between job growth, wage increases, and inflation will likely remain a critical factor in shaping economic policy and market expectations in the months ahead.

Private Hiring Slows More Than Expected as Labor Market Cools

Posted on by slightbourne@noblecapitalmarkets.com

The red-hot U.S. labor market showed further signs of cooling in May as private hiring slowed more than anticipated, according to the latest employment report from payroll processor ADP.

Companies added just 152,000 jobs last month, coming in well below economist projections of a 175,000 increase. It marked the lowest level of monthly job gains since January and a notable deceleration from April’s downwardly revised 188,000 figure.

The ADP report, which captures private payroll changes but not government hiring, suggests the robust labor market demand that has characterized the pandemic recovery is moderating amid higher interest rates, still-elevated inflation, and growing economic uncertainty.

“Job gains and pay growth are slowing going into the second half of the year,” said Nela Richardson, ADP’s chief economist. “The labor market is solid, but we’re monitoring notable pockets of weakness tied to both producers and consumers.”

A Shift Toward Services
While goods-producing sectors like manufacturing, mining, and construction have driven solid hiring for much of the recovery, last month they contributed only 3,000 net new jobs.

Job creation was instead carried by services industries, led by trade/transportation/utilities with 55,000 new positions. Other strong areas included education/health services (+46,000), construction (+32,000), and other services (+21,000).

However, even within services there were weak spots, including the previously booming leisure/hospitality sector which saw just a 12,000 job gain in May. Professional/business services also posted a decline.

Manufacturers Slashing Payrolls
The report highlighted particular softness in the manufacturing sector, which shed 20,000 jobs last month amid a broader industrial slowdown.

Factories have been cutting payrolls for most of the past 18 months as higher material and energy costs, supply chain disruptions, and softening demand weighed on production. The sector has contracted in seven of the last eight months, according to survey data.

Regional manufacturing indexes have also pointed to slowing activity and employment levels, including the latest readings from the Dallas and Richmond Federal Reserve districts.

Small Businesses Feeling the Pinch
Companies with fewer than 50 employees were disproportionately impacted in May, seeing a net decrease in headcounts. Those with 20-49 workers reduced staffing levels by 36,000.

The pullback at smaller firms underscores how rapidly tightening financial conditions and ebbing consumer demand have started to squeeze profits and required some businesses to adjust their workforce levels.

Annual Pay Growth Steady at 5%
Despite some loss of momentum in overall hiring, the ADP report showed private wage growth stayed on a 5% annual trajectory last month, holding steady at that level for a third consecutive period.

The elevated but moderating pace of pay increases suggests employers are still working to attract and retain staff even as overall job creation starts to wane from its torrid pandemic-era pace.

While a single data point, the ADP release could preview what’s to come from the more comprehensive government nonfarm payrolls report due out Friday. Economists expect that report to show a 190,000 increase in total U.S. payrolls for May, slowing from April’s 253,000 gain.

As borrowing costs continue climbing and spending softens, further hiring deceleration across both goods and services sectors seems likely in the months ahead, though an outright decline remains unlikely based on most economic projections.

Red Hot Labor Market as U.S. Employers Add 184,000 Jobs in March

Posted on by slightbourne@noblecapitalmarkets.com

The U.S. labor market showed no signs of cooling in March, with private employers boosting payrolls by 184,000 last month according to a report by payrolls processor ADP. The stronger-than-expected gain signaled the jobs machine kept humming despite the Federal Reserve’s aggressive interest rate hikes aimed at slowing the economy and conquering inflation.

The 184,000 increase was the largest monthly jobs number since July 2023 and topped economists’ estimates of 148,000. It followed an upwardly revised 155,000 gain in February. The vibrant report sets the stage for the government’s highly anticipated nonfarm payrolls release on Friday, with economists forecasting a still-solid 200,000 jobs were added economy-wide last month.

“March was surprising not just for the pay gains, but the sectors that recorded them,” said Nela Richardson, chief economist at ADP. “Inflation has been cooling, but our data shows pay is heating up in both goods and services.”

Indeed, wage pressures showed little evidence of easing last month. The ADP data showed annual pay increases for those keeping their jobs accelerated to 5.1%, matching the elevated pace from February. Workers switching jobs saw an even bigger 10% year-over-year jump in wages.

The stubborn strength of the labor market and still-elevated pace of wage increases complicates the Federal Reserve’s efforts to tame inflation, which has started to moderate but remains well above the central bank’s 2% target. Fed officials have signaled they likely have more interest rate hikes ahead as they try to dampen hiring and pay growth enough to fully wrestle inflation under control.

“The labor market remains surprisingly resilient despite the Fed’s tightening of financial conditions over the past year,” said Kathy Bostjancic, chief U.S. economist at Oxford Economics. “The strong March ADP gain suggests we’re not out of the woods yet on inflation pressures.”

Job growth in March was fairly broad-based across sectors and company sizes. The leisure and hospitality sector continued to be a standout, adding 63,000 new positions as Americans kept splurging on travel and entertainment. Construction payrolls increased by 33,000, while the trade, transportation and utilities sectors combined to add 29,000 workers.

Hiring was also widespread geographically, with the South leading the way by adding 91,000 new employees. The data showed bigger companies with over 50 workers accounted for most of the overall job gains.

One blemish was the professional and business services sector, which cut payrolls by 8,000 in a potential sign of some pockets of weakness emerging amid higher borrowing costs.

While the ADP report doesn’t always sync perfectly with the government’s more comprehensive employment survey, it adds to recent signs that a long-predicted U.S. economic downturn from the Fed’s inflation-fighting campaign has yet to fully materialize. The labor market has remained extraordinarily buoyant, with job openings still far exceeding the number of unemployed and layoffs staying low.

Economists expect Friday’s jobs report to show the unemployment rate held steady at 3.9% in March. If confirmed, it would mark over a year since joblessness was last below 4%, an extremely tight labor market that has forced many companies to raise wages at an unusually rapid clip in order to attract and retain workers.

With paychecks still climbing at a relatively elevated pace, the Fed worries inflationary pressures could become entrenched in the form of a self-perpetuating wage-price spiral. That fear raises the risk the central bank could opt for even higher interest rates, potentially increasing recession risks.