Private sector payrolls expanded at the slowest rate in over 3½ years in August, indicating a further weakening labor market, as per ADP. In August, companies added only 99,000 employees, lower than the revised 111,000 in July and beneath the Dow Jones consensus estimate of 140,000. This marked the weakest month for job growth since January 2021, according to data from the payrolls processing firm.
ADP’s chief economist, Nela Richardson, noted that the job market’s decline led to slower hiring after two years of significant growth. The report aligns with recent data showing a considerable slowdown in hiring from the rapid pace seen after the Covid outbreak in early 2020. Job openings in July hit their lowest level since January 2021, as reported by the Labor Department, while Challenger, Gray & Christmas stated that August had the highest layoffs since 2009 and the slowest hiring year since 2005.
Despite the slowdown in hiring, only a few sectors experienced actual job losses, with professional and business services down by 16,000, manufacturing by 8,000, and information services by 4,000. However, sectors like education and health services added 29,000 jobs, construction increased by 27,000, and other services contributed 20,000. Financial activities saw a gain of 18,000, and trade, transportation, and utilities were up by 14,000.
Wages continued to rise, albeit at a slower pace compared to previous gains. Annual pay rose by 4.8% for those remaining in their jobs, similar to July levels, according to ADP. The ADP data sets the stage for the upcoming nonfarm payrolls report by the Bureau of Labor Statistics, expected to be released on Friday. The consensus forecast predicts a payroll increase of 161,000 in August, with a slight decrease in the unemployment rate to 4.2%.
The weakening job market is anticipated to prompt the Federal Reserve to lower interest rates during its meeting on Sept. 17-18. Market expectations suggest a quarter percentage point cut at this month’s meeting and a total reduction of one percentage point in the federal funds rate by the end of 2024. ADP mentioned a rebenchmarking of its data based on the Quarterly Census of Employment and Wages, resulting in a 9,000 job decline for the August report.
