Topline
Private employers in the U.S. added far fewer jobs than expected this month, according to an ADP report released Wednesday morning, as the resilient labor market begins showing cracks.
Key Facts
Private payrolls swelled by 177,000 in August, well below the consensus economic estimate of 200,000, according to FactSet data.
Job growth as tracked by ADP slowed by more than 40% month-over-month, coming in far below July’s 312,000 expansion.
This month’s growth is the slowest since March.
Growth was the strongest in the education and health services sector, which ADP said added 52,000 jobs in August, while financial services was the only sector to see zero expansion.
Labor market growth is now “consistent with the pace of job creation before the pandemic,” ADP’s chief economist Nela Richardson wrote in a statement accompanying the report, indicating the explosive increase in employment and wages seen over the last three years is a thing of the past.
Key Background
Stock futures rose slightly following the ADP report’s release, looking to build on their strongest gains in months, which were partially inspired by similarly weak job openings data released Wednesday by the Labor Department. Investors largely root for slow economic data as it means the Federal Reserve is more likely to back off of its most aggressive monetary policy sooner rather than later. Though American wages are at an all-time high and the unemployment rate sits at its pre-pandemic rate, the Fed has expressed a need to see a slowdown in the labor market in order to rightsize the economy due to inflationary pressures.
Crucial Quote
“The labor market is cooling and is taking pressure off policy makers concerned with a second wave of inflation,” LPL Financial’s chief economist Jeffrey Roach wrote in emailed comments.
Big Number
5.9%. That’s how much private employee pay has risen over the last 12 months, per ADP. That wage growth slightly outpaces annualized core inflation, which checked in at 4.7% last month.
What To Watch For
The Labor Department will release its monthly non-farm payrolls report Friday at 8:30 a.m. EDT, providing the definitive update for the U.S. unemployment rate and wage growth. Economists project the non-farm U.S. workforce to grow by 170,000 this month, moderating from a 187,000 increase in July.
Chief Critic
In a Wednesday note to clients, Sevens Report analyst Tom Essaye cautioned against bullish investors celebrating a labor market slowdown as an outright win for stocks, writing the economy is now entering the “difficult” stage of navigating a higher-interest rate environment. “If the labor market is seeing easing, then now is the time the Fed will have to perfectly execute the ‘soft landing,’ because getting the economy to slow is the ‘easy’ part of monetary policy.”
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