December 7, 2022
Private sector job growth slows to just 132,000 positions added in August, new ADP report shows

Private sector job growth slows to just 132,000 positions added in August, new ADP report shows

The August number reported by payroll processing giant ADP is far below economists’ expectations of 225,000 positions added.

“We could be at an inflection point, from super-charged job gains to something more normal,” ADP chief economist Nela Richardson said in a statement.

“My takeaway from these numbers is that companies are slowing their additional headcount,” she said in a call after the report was released.

ADP also found that annual pay rose by 7.6% — the first time its report has tracked pay, which it said encompasses gross earnings inclusive of tips, commissions and bonuses. The number indicates a higher rate of wage inflation than has been previously reported — an implication that would suggest inflation is helping to push employee compensation higher.

The report also found that people who change jobs see much larger pay increases than those who stay, with median pay for job switchers jumping by 16.1%.

That’s not great news for inflation. “The inflation picture is not really going to get better for a while,” said Dan North, senior economist at Allianz Trade.

“I believe that wage growth is directly contributing to overall inflation,” North said — a dynamic that, if it persists, could portend a much-dreaded wage-price spiral, in which expectations of higher inflation trigger ongoing increases in both worker pay and consumer prices.

Higher pay increases for people switching jobs means the elevated level of churn — the so-called Great Resignation — might not be winding down just yet, since many workers will continue to job-hop in order to keep ahead of higher monthly bills, said Peter Essele, head of portfolio management at Commonwealth Financial Network. “I think you’re going to see job switchers accelerate because of the difference in pay scale,” he said.

A recent report from the National Federation of Independent Business showed that almost half of companies surveyed said they had increased compensation, with one quarter planning to do so in the near future. That same survey found that 56% reported raising prices, with 37% planning to do so.

Labor market strength varies by sector

ADP found that the vast majority of new jobs — 110,000 — were in the services sector, with 96,000 in leisure and hospitality. It also indicated considerable variation in different sectors of the labor market.

“You’re seeing different sectors of the economy reflect a slowing pressure… a more conservative look at hiring,” Richardson said.

“Construction has held up moderately well despite the obvious cooling” due to a slowdown in building as the housing market starts to soften, she said. Manufacturing was flat while the information, financial activities, professional and business services, and education and health services sectors all shed jobs.

While last month’s jobs report from the Bureau of Labor Statistics noted that the US economy has now regained more than the number of jobs it lost in the pandemic, continuing organic job growth will be a challenge, North said — especially with the threat of inflation becoming entrenched. “The tough part is going to be creating jobs going forward… especially because the Federal Reserve is so aggressively raising interest rates, which it has to do.”

New methodology aims to improve labor market visibility

This is the first monthly employment report from ADP after it announced a pause earlier this year to implement new methodology that aims to give economists and policymakers better visibility into labor market movement.

The ADP Research Institute partnered with the Stanford Digital Economy Lab on the new employment report, which the company said will use “fine-grained, high-frequency data” that will provide a “richer and more useful analysis” of the US job market, including a more granular look at employment by industry, establishment size and location by census region. ADP handles payroll transactions for more than 25 million workers.

The report is published two days ahead of the government’s official job report from the BLS and at times, the two numbers have diverged significantly. While statisticians have formulas to mitigate the effects of seasonality on sector-specific fluctuations — such as retailers shedding jobs in January after the post-holiday shopping season — the distortions created by the pandemic posed an unprecedented challenge.

Economists expect Friday’s BLS report to show that 300,000 jobs were added to the economy in August, according to Refinitiv.