As ongoing interest rate hikes fuel uncertainty over the economy, job growth among private U.S. employers slowed for the second consecutive month in August, according to payroll processor ADP, which notes that the “super-charged” labor market may finally be at an inflection point as companies try to gauge the implications of the Federal Reserve’s tightening agenda.
Dragged down by lost jobs in the financial and professional services industries, private employment increased by 132,000 jobs from July to August, according to the ADP’s National Employment Report released Wednesday—far below economist projections calling for nearly 300,000 new jobs.
The worse-than-expected data suggests “a recent shift toward a more conservative pace of hiring,” ADP chief economist Nela Richardson said in a Wednesday statement, positing the slowdown could be due to companies “try[ing]
to decipher the economy’s conflicting signals.”
Job loss was worst among businesses with fewer than 20 employees, which saw employment fall by 47,000 workers in August, while medium and large businesses added roughly 50,000 jobs apiece, according to ADP.
Meanwhile, annual pay—calculated using ADP’s payroll data for over 25 million U.S. employees—climbed at an annual rate of 7.6%, in line with levels since this spring and significantly higher than the growth rate of about 2% at the start of last year.
The data comes as Federal Reserve officials try to gauge whether the labor market remains strong enough to justify a continuation of its aggressive interest rate hikes, which have been curtailing economic growth in an attempt to cool decades-high inflation.
In emailed comments Wednesday, analyst Adam Crisafulli of Vital Knowledge Media said the report should be positive for stocks, as it suggests the labor market may be cooling down enough to temper upcoming rate increases; the Dow Jones Industrial Average and S&P 500 erased premarket losses after the release, climbing 0.3% and 0.5% by 9:00 a.m. EDT.
“We could be at an inflection point, from supercharged job gains to something more normal,” says Richardson.
What To Watch For
The Labor Department’s monthly jobs report, which tracks employment across the public and private sectors, is slated for release Friday morning. Economists expect the pace of hiring cooled last month, with 328,000 new jobs, compared to 528,000 in July.
Despite growing fears of a recession and widespread reports of layoffs and job cuts, the labor market has remained one of the economy’s strongest pillars after bouncing back from the Covid recession. Fed officials have pointed to the strength as evidence the economy can withstand additional rate hikes, and experts note that any signs of slower job growth could help slow the central bank’s aggressive policy pivot. “The reduction in labor demand needed to restore balance to the labor market and slow wage growth and inflation is already under way,” Goldman Sachs economists said in a note last week, pointing to the number of job openings, which have fallen from a record high of nearly 11.6 million in March to about 11.2 million last month, as an early indicator of the slowdown.
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