US companies added 177,000 jobs in August, down from 371,000 in July and missing the estimates by Bloomberg economists of 195,000. The ADP report marks the slowest hiring activity in the country’s private sector in 5 months, indicating a notable slowdown in the labor market.
US Corporate Hiring the Slowest in 5 Months, Says ADP
The US private sector added 177,000 jobs in August, the fewest in five months, the new ADP payrolls data revealed on Wednesday. The figure represents a sharp decrease from the prior month when US companies added 371,000 new positions and below Bloomberg’s projected 195,000.
The slowdown in corporate hiring underscores a downtrend in labor demand, one of the vital inflation drivers. According to ADP, the deceleration was particularly evident in the leisure and hospitality sectors, which have been key growth drivers during the coronavirus pandemic. The two sectors recorded the slowest job gain since March 2022 in August.
Nevertheless, no sector displayed job cuts, while the sharpest gains were seen in education and health services. Moreover, trade and transportation categories also witnessed noteworthy growth.
The change in dynamics comes alongside a downturn in wage growth. Per ADP, employees who retained their existing job positions saw a 5.9% year-over-year median pay increase in August, the weakest gain since 2021. In the meantime, the median jump in annual wages for workers who changed jobs stood at 9.5%.
Concerns Over ADP Data’s Reliability
Following a drop in job openings, the slowdown in corporate hiring suggests that the hot US labor market is cooling down. While many companies are hesitant about making layoffs, the ADP report illustrates that some are scaling back hiring or cutting hours to rein costs.
However, although ADP reports are powerful enough to move the capital markets, many view the data as unreliable, mainly due to its weak correlation with non-farm payroll (NFP) data reported directly by the US government. Steve Sosnick, chief strategist at Interactive Brokers, believes this is mainly due to the differences in how these two reports are constructed.
In short, the ADP data is derived from ADP customers, Sosnick noted, which mainly include “large employers who find it beneficial to outsource their payroll and related functions to a large outside vendor.” On the other hand, the NFP reports, issued by the Bureau of Labor Statistics, deliberately try to include small businesses as well.
This article originally appeared on The Tokenist
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