Hiring Slowed in the Private Sector in August, ADP Says

Could demand for labor in the U.S. finally be cooling?

A report released Tuesday suggested a steep decline in hiring by businesses in August. Private payrolls expanded by 177,000 this month,  down from 371,000 in the prior month, the monthly private sector jobs report by the SDP Research Institute said.

Economists had forecast around 200,000 workers would be added to private sector payrolls.

The ADP report no longer attempts to anticipate the government’s nonfarm payrolls estimate, which will be released Friday. Instead, the economists behind the report regard it as an independent source of data about the health of the U.S. labor market and the broader economy.

Despite the decline, jobs are still growing at a robust pace. Economists estimate that the U.S. needs to add fewer than 100,000 jobs to keep pace with the growth of the working age population.

“This month’s numbers are consistent with the pace of job creation before the pandemic. After two years of exceptional gains tied to the recovery, we’re moving toward more sustainable growth in pay and employment as the economic effects of the pandemic recede,” said ADP chief economist Nela Richardson.

On Tuesday, the government said employers were looking to fill 8.827 million vacant jobs as of the last day of July, the first time the job openings estimate has fallen below nine million since 2021. This pushed the ratio of openings to unemployed persons down to 1.5 to one, a big drop from the recent peak of two-to-one but still more than twice the historical average of 0.6 to one.

A strong labor market has been a driving force in the economy over the past two years, supporting consumer spending growth at high levels and likely contributing to inflation’s persistence. Many economists expected the economy to fall into a recession this year but low unemployment has helped the economy continue to grow and even accelerate as 2023 unfolded.

Hiring in leisure and hospitality, which have been a big source of payroll growth during the pandemic recovery, has moderated. In August, businesses in the sector added just 30,000 jobs, the lowest since March 2022.

Trade, transportation, and utilities added a very strong 45,000. Manufacturing payrolls grew by 12,000, a robust figure for the sector. Health and education grew by 52,000. Financial services were flat for the month. Construction added 6,000 workers to payrolls.

No sector shed jobs in the month, an indication that demand for workers remains very high.