The latest report from ADP reveals that private sector payrolls grew at the slowest pace in over three-and-a-half years in August. The data shows that only 99,000 workers were hired during the month, falling short of the consensus forecast of 140,000. This marks a significant decline from the previous month’s figure of 111,000. According to ADP chief economist Nela Richardson, the job market is experiencing a downward drift, resulting in slower hiring rates after a period of robust growth. This report is in line with other recent data points indicating a considerable slowdown in hiring since the peak following the Covid outbreak in early 2020.
While the overall trend shows a decline in job growth, not all sectors are equally affected. Some sectors reported actual job losses, with professional and business services declining by 16,000, manufacturing by 8,000, and information services by 4,000. On the other hand, sectors like education and health services, construction, and other services experienced an increase in job numbers. Financial activities and trade, transportation, and utilities also saw gains in employment. However, the data reveals that companies with fewer than 50 employees reported a loss of 9,000 jobs, while those with 50 to 499 employees saw an increase of 68,000 jobs.
One notable aspect of the report is the continued rise in wages, although at a slower pace than before. Annual pay increased by 4.8% for workers who stayed in their jobs, similar to the level seen in July. This suggests that despite the slowdown in hiring, there is still upward pressure on wages in the labor market.
The ADP report sets the stage for the upcoming nonfarm payrolls report by the Bureau of Labor Statistics, which is closely watched by the markets. The consensus forecast indicates an increase in payrolls by 161,000, with a slight decrease in the unemployment rate to 4.2%. However, recent data showing a weakening jobs picture could pose downside risks to this estimate. Market expectations suggest that the Federal Reserve will respond to the deteriorating labor market by lowering interest rates in its upcoming meeting. There is uncertainty regarding the pace and aggressiveness of the rate cuts, with some predicting at least a quarter percentage point cut in the current meeting and a total reduction of one percentage point by the end of 2024.
ADP mentioned that it conducted a rebenchmarking of its data based on the Quarterly Census of Employment and Wages, resulting in a downward adjustment of 9,000 jobs for the August report. A similar adjustment from the BLS revealed an overcount of 818,000 nonfarm payrolls between April 2023 and March 2024. These adjustments highlight the importance of accurate data in assessing the labor market situation. Looking ahead, the labor market is likely to face continued challenges, with uncertainties surrounding the pace of recovery and the impact of policy decisions on employment trends.
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