Private job growth decelerated in July, with the pace of wage increases hitting a three-year low, according to a report by payrolls processing firm ADP on Wednesday. In July, companies added only 122,000 jobs, marking the slowest growth since January and falling below the revised 155,000 jobs added in June. Economists surveyed by Dow Jones had anticipated an increase of 150,000 jobs.
ADP also noted that wages for existing employees rose by 4.8% compared to a year ago, representing the smallest increase since July 2021 and a 0.1 percentage point decline from June. Nela Richardson, ADP’s chief economist, commented that the labor market’s moderation in wage growth aligns with the Federal Reserve’s efforts to curb inflation, stating that any resurgence in inflation would not be due to labor factors.
Following the report, futures linked to major stock indexes rose, while Treasury yields declined. Additionally, the Labor Department’s Bureau of Labor Statistics reported positive news on inflation, with the employment cost index rising by just 0.9% in the second quarter, lower than the 1.2% increase in the first quarter and below the Dow Jones estimate of a 1% rise.
The reports may increase the likelihood of the Federal Reserve signaling a rate cut in September at the conclusion of its two-day meeting. Job growth was primarily concentrated in the trade, transportation, and utilities sector, which added 61,000 jobs, and the construction sector, which contributed 39,000 jobs. Sectors such as leisure and hospitality (24,000), education and health services (22,000), and other services (19,000) also saw gains.
However, some sectors experienced net losses in July, including professional and business services (-37,000), information (-18,000), and manufacturing (-4,000). Companies with fewer than 50 employees also reported a loss of 7,000 jobs. Geographically, job gains were most prominent in the South, which added 55,000 jobs, while the Midwest saw an increase of just 17,000 jobs.
The ADP report precedes the release of the Labor Department’s Bureau of Labor Statistics nonfarm payrolls count, which includes government jobs. The two reports can vary significantly, with ADP exceeding the BLS estimate of 136,000 private payrolls added in June. Economists anticipate job growth of 185,000 in July, a decrease from the 206,000 jobs added in June, with the unemployment rate expected to remain at 4.1%.
