Data released on Wednesday by Automatic Data Processing Inc (ADP) showed that U.S. private sector employment increased by just 44,000 in July, falling short of market expectations and marking the smallest gain since the start of the year. This indicates a cooling in the recent robust hiring momentum. The prior month's figure was revised to 95,000. The July increase fell below all economists' forecasts in a Bloomberg survey.
Despite the slowdown in hiring, the report revealed that wage growth for job changers accelerated to its fastest pace in nearly a year. The data suggests that the labor market remains stable, supported by resilient business and consumer demand. If this trend is confirmed by the official monthly employment report due on Friday, the recent employment trajectory would allow Federal Reserve officials to continue focusing on inflation, which remains elevated.
Fed Chair Kevin Warsh described the labor market as "solid" and "stable" following the policy meeting last week, when policymakers held interest rates steady, though three officials voted for a hike. The ADP report, compiled in collaboration with the Stanford Digital Economy Lab, is released ahead of the more comprehensive and closely watched July employment report from the Bureau of Labor Statistics (BLS) on Friday. Historical data indicates that the ADP report's predictive value for the BLS's private sector employment estimates has been inconsistent.
Wage Growth
The ADP report also showed that wages for job changers rose 7% year-over-year, while pay gains for those staying in their roles held steady at 4.4%. By sector, wage increases were more pronounced in financial activities and manufacturing. Nela Richardson, chief economist at ADP, noted, "Job changers are highly sensitive to real-time economic conditions, and their rapid wage growth signals supply constraints in some parts of the labor market."
The government employment report, including public sector hiring, scheduled for Friday is expected to show a gain of 80,000 jobs in July, an improvement from the official June data, which had slowed. ADP data indicated that the education and health services sector added 36,000 jobs, while the leisure and hospitality sector lost 11,000 jobs. More than half of the new positions came from small businesses. The ADP data is based on payroll records covering over 26 million private sector employees nationwide.
Additionally, the JOLTS report released Tuesday by the Bureau of Labor Statistics showed that in June, there were 1.04 job openings for every unemployed person, roughly unchanged from May. Market surveys indicate that economists expect private sector employment to increase by 78,000 in July (up from 49,000 in June), with total nonfarm payrolls expected to rise by 80,000 (up from 57,000 in June), and the unemployment rate is expected to remain at 4.2%. However, there is a risk of a slight upward move in the unemployment rate. A survey from the Conference Board released last week showed that the share of consumers who view jobs as "plentiful" fell to its lowest level since February 2021, suggesting the labor market may face marginal pressure.
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