Private Sector Job Growth Declines
New data from ADP released on Thursday revealed a significant slowdown in private sector job growth. The report showed the fewest jobs added in a month since January 2021. This marked a clear signal of a cooling labor market.
ADP’s National Employment Report for August indicated that only 99,000 jobs were added. This figure was well below economists’ estimates of 145,000 and fewer than the 122,000 jobs added in July. Furthermore, August marked the fifth consecutive month of slowing payroll growth.
Labor Market Cooling
Nela Richardson, ADP’s chief economist, emphasized this trend. She noted that the job market’s downward drift led to slower-than-normal hiring. This slowdown followed two years of significant growth. Richardson added that the next critical indicator to watch is wage growth. Wage growth has been stabilizing after a sharp post-pandemic slowdown.
This data comes as inflation eases, prompting investors to monitor how quickly the Federal Reserve could reduce interest rates. The cooling job market has emerged as a central factor in this consideration.
Fed’s View on Labor Market
Federal Reserve Chair Jerome Powell addressed this trend in a recent speech. He stated that the labor market’s cooling has been “unmistakable.” Powell acknowledged that the risks to the Fed’s full employment mandate have increased.
In his comments, Powell emphasized that it seems unlikely the labor market will contribute to inflationary pressures soon. He also made it clear that the Fed does not aim to see further cooling in labor market conditions.
JOLTS Data Signals Weakness
Additional signs of a weakening labor market emerged in data released by the Bureau of Labor Statistics (BLS) on Wednesday. The Job Openings and Labor Turnover Survey (JOLTS) showed job openings at their lowest level since January 2021. According to the report, there were 7.67 million jobs available at the end of July, down from 7.91 million in June.
Another significant data point was the ratio of unemployed workers to job openings. This ratio fell to 1.07 in July, a decline from the pre-pandemic average seen in 2019. Renaissance Macro’s head of economic research, Neil Dutta, commented that this decline was another sign of cooling labor demand.
August Jobs Report Anticipation
Investors and economists now look ahead to Friday’s August jobs report for a more comprehensive view of the labor market. Consensus expectations project the US economy added 165,000 jobs in August. The unemployment rate is also expected to decline slightly, reaching 4.2%. This would represent the first drop in the unemployment rate since March.
Private Sector Job Growth – Market Impact and Fed Policy
Overall, the slowdown in private sector job growth, combined with data from JOLTS, has fueled speculation about the Federal Reserve’s next move. Investors remain focused on how this cooling labor market will influence interest-rate decisions and the broader economy.
