ADP National Employment Report suggests labor market may be impacted by higher interest rates
Hiring by U.S. companies in January fell short of expectations, hinting at a potential slowdown in the labor market in response to increased interest rates, according to the ADP National Employment Report released on Wednesday. The report reveals that companies added 107,000 jobs last month, falling short of the predicted 145,000 gain forecasted by economists surveyed by Refinitiv.
The weakened hiring activity coincides with the Federal Reserve’s aggressive tightening campaign, which has pushed interest rates to the highest level since 2001. In response to signs of moderating inflation and a slowing economy, policymakers signaled last month that they would halt any further rate hikes.
Wage Growth Continues to Shrink
A positive sign for the Federal Reserve emerged as wage growth continued to shrink in January. The report indicates a 5.2% increase in annual pay last month. However, for workers who switched jobs, wages only climbed by 7.2%, marking the smallest annual gain since May 2021.
Nela Richardson, ADP chief economist, commented, “Wages adjusted for inflation have improved over the past six months, and the economy looks like it’s headed toward a soft landing in the U.S. and globally.”
Slowdown Felt Across Various Sectors
The job growth slowdown affected nearly every sector in January. The leisure and hospitality industry experienced the most gains, adding just 28,000 new employees. Trade, transportation, and utilities saw an increase of 23,000 workers, while construction employment rose by 22,000. The only sector that shed jobs last month was Information, with a decline of 9,000.
Anticipation for January Jobs Report
The ADP data comes ahead of the more closely watched January jobs report from the Labor Department, set to be released on Friday morning. Economists anticipate that the report will reveal employers having hired 180,000 workers, following a gain of 216,000 in December. The unemployment rate is predicted to slightly increase to 3.8%.
It is important to note that ADP numbers have historically differed significantly from the official government count and are considered an unreliable indicator of future trends.