Author: Zhang Yaqi, Wall Street CN
U.S. private employment growth in July fell significantly below expectations, indicating a cooling in labor market momentum, but wage growth remains resilient, and the overall employment situation remains stable.
Data released by the ADP Research Institute on Wednesday showed that private sector employment increased by 44,000 in July, below the 65,000 expected in a Bloomberg survey of economists, and the lowest level so far this year, after a revised figure of 95,000 in June.
Despite the slower pace of hiring, the report also showed that wage growth for job switchers accelerated to its strongest in nearly a year. Nela Richardson, chief economist at ADP, noted, "The typical hiring pattern is changing, and employers are responding to shifts in the macroeconomic environment."
The U.S. government's non-farm payroll report, to be released on Friday, is drawing significant market attention. If the data is confirmed, the current employment trend would support the Federal Reserve's continued focus on still-elevated inflation.
Employment growth hits yearly low, goods-producing sector under pressure
ADP data showed that private sector employment increased by 44,000 in July, not only below all economist forecasts in the Bloomberg survey, but also the lowest since January this year, a significant decline from the revised 95,000 in June. By industry, the goods-producing sector saw a net loss of 3,000 jobs, indicating pressure on labor demand in some areas of the real economy.
The ADP report is based on payroll data covering more than 26 million U.S. private sector employees and is jointly released by the ADP Research Institute and the Stanford Digital Economy Lab.
While employment growth slowed, wage data showed another side. The report showed that wages for job switchers rose 7% year-over-year, the fastest pace in nearly a year; wage growth for stayers remained at 4.4%.
Nela Richardson said in a statement, "Job switchers are highly sensitive to real-time economic conditions, and their rapid wage growth indicates supply constraints in some parts of the labor market." This signal suggests that despite the overall slowdown in employment growth, structural tensions in the labor market have not been eliminated.
Fed Stance and Friday's Nonfarm Payrolls Data in Focus
Before the ADP report was released, Fed Chairman Warsh described the job market as "solid" and "stable" at a press conference last week. The Federal Open Market Committee (FOMC) kept interest rates unchanged, but three officials voted for a rate hike, indicating that internal divisions still exist.
The market is now waiting for confirmation from the government's official nonfarm payrolls report on Friday. According to a Bloomberg survey, economists expect July nonfarm payrolls (including the public sector) to increase by 80,000, an improvement from June. If the data aligns with the ADP report, it will further strengthen the market view that "the labor market is solid enough to support the Fed's focus on fighting inflation," which will have a direct impact on expectations for the Fed's policy path.
