Private Payrolls Estimate Indicates Labor Market Still Too Hot

WASHINGTON, DC - JULY 27: U.S. Federal Reserve Board Chairman Jerome Powell speaks during
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The U.S. labor market is still adding jobs at a fast clip, according to a job reported released Wednesday, raising concerns that the Federal Reserve’s fight against inflation will be tougher than expected.

Payrolls in the private sector rose 208,000 last month after an upwardly revised 185,000 gain in August, according to data from ADP Research Institute in collaboration with Stanford Digital Economy Lab. Economists had been expecting the ADP report to show just 200,000 jobs.

The economy is undergoing a shift as consumers migrate spending from goods to services, slowing demand for manufactured goods and factory labor but raising demand for services and workers in that sector. During the pandemic, spending heavily shifted toward goods and is still rebalancing back to a more normal distribution of demand. On Tuesday, the Commerce Department reported that orders for durable goods made in U.S. factories declined by o.2 percent in August.

The ADP report for September reflected this rebalancing. The good producing sector saw payrolls drop by 29,000. Manufacturing payrolls shrank by 13,000 jobs and mining and natural resources payrolls shrank by 16,000. Construction, where spending has been falling for three months, was unchagded compared with the prior month.

Hiring in the services side of the economy expanded rapidly. Payrolls grew by 237,000, ADP said. Theere was an enormous 147,000 increase in the trade, transportation, and utilities sector. Professional and business services payrolls grew by 57,000. Health and education payrolls expanded by 38,000. Hospitality and leisure payrolls rose by 31,000.

“There are signs that people are returning to the labor market. We’re in an interim period where we’re going to continue to see steady job gains. Employer demand remains robust and the supply of workers is improving–for now,” said Nela Richardson, chief economist at ADP.

Unfortunately, the rebalancing has also been accompanied by rising inflation in the services sector. The Consumer Price Index showed that services prices were up 0.7 percent from July to August and 6.8 percent year-over-year. That is bad news on inflation because price pressures are thought to be more persistent in services than goods.

Some of the sectors that have been hard hit by this year’s stock market declines shed jobs in September. The information technology sector is down 27.5 percent year-to-date and saw payrolls fall by 19,000. The financial sector’s shares are down 17.2 percent year-to-date. Payrolls shrank by 16,000 in September.

Wage pressure is still running very high. Workers who have not changed jobs recently saw an annual pay increase of 7.8 percent in September, up from a revised 7.7 percent in August. Workers who change jobs, who have been receiving double-digit pya increases since the summer of 2021, were paid 15.7 percent more than they were a year earlier. That is a decline from the 16.2 percent gain in August, which ADP says is the biggest deceleration in the three year history of its wage data.

“While job stayers saw a pay increase, annual pay growth for job changers in September is down from August,” Richardson said.

ADP’s job report used to be viewed as a forecast of the government’s employment data, which is released on the first Friday of the month. The two data sets fell badly out of sync during the pandemic and reopening and ADP stopped issuing the report for a few months this summer. Last month, it introduced a new report using different methodology that it says is no longer trying to forecast the government data. Many economists and investors still look to it for hints about the likely direction of the government jobs report.

Economists expect the Labor Department will report payroll growth of 275,0000 in September, down from 315,000. That figure includes public sector hiring as well as private sector. The unemployment rate is expected to hold steady at 3.7 percent. Wage gains are expected to hold steady at 0.3 percent month-to-month and to tick down to 5.1 percent yaer-over-year from 5.2 percent a month earlier.

introduced new methodology to its report and is no longer trying to forecast the government’s employment data, which will be released on Friday. But economists said the data sets the tone for the government’s report on Friday. Economists expect the Labor Department to report that payroll growth, including the public sector, rose by 275,000 in September, down from 315,000 in the prior month.


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