The latest employment data from ADP paints a picture of a cooling job market, with private sector job growth in August hitting its lowest point since January 2021.
The report showed 99,000 jobs added, falling short of economists’ expectations of 145,000 and less than the 122,000 jobs added in July and continuing a five-month trend of slowing payroll additions.
Nela Richardson, ADP’s chief economist, described the labor market as “undoubtedly cooling” in a call with reporters. However, she also pointed out some nuances in the data. For instance, employee turnover remains relatively low, with workers tending to stay put rather than switch jobs.
Recent data from the Labor Department showed weekly unemployment claims were down. In the week ending Aug. 31, 227,000 claims were filed, a decrease from the 232,000 in the prior week and lower than the 11-month high at the end of July.
“People are also staying in their jobs,” Richardson noted. “They’re not quitting, we’re not in the Great Resignation, and so there’s less need to hire.”
This cooling trend aligns with recent comments from Federal Reserve Chair Jerome Powell, who described the slowdown in the job market as “unmistakeable.”
Powell also expressed concern about potential risks to full employment, suggesting the Fed is keeping a close eye on labor market conditions as it considers future interest rate decisions.
“It seems unlikely that the labor market will be a source of elevated inflationary pressures anytime soon,” Powell said in a recent speech. “We do not seek or welcome further cooling in labor market conditions.” Powell continued.
Other indicators support this cooling narrative. The Job Openings and Labor Turnover Survey (JOLTS) reported 7.67 million job openings at the end of July, the lowest figure since January 2021. Additionally, the ratio of unemployed workers to job openings has fallen to levels last seen in early 2018, before the pandemic disrupted the labor market.
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Neil Dutta, head of economic research at Renaissance Macro, commented on these trends, saying, “Yet another sign that labor demand has cooled, going a bit beyond where we were just before the pandemic.”
The ratio of job openings to unemployment (V/U) declined to a fresh low of 1.071 in July, about where it was in April 2018. This is yet another sign that labor demand has cooled, going a bit beyond where we were just before the pandemic. pic.twitter.com/2aR2J3RnuX
— RenMac: Renaissance Macro Research (@RenMacLLC) September 4, 2024
These developments have sparked discussions about the Fed’s next moves regarding interest rates. Market expectations for a rate cut have increased, with some analysts predicting a significant reduction by the end of September.
However, Richardson believes the Fed will likely take a more measured approach. “I don’t think that there’s anything in the ADP numbers, and I suspect what you’ll hear from [Bureau of Labor Statistics] tomorrow, that changes the natural inclination of the Fed to be data dependent and moderated in its policy,” she explained.
All eyes will be on the upcoming August jobs report from the Bureau of Labor Statistics. Economists expect it to show 165,000 jobs added and a slight decrease in the unemployment rate to 4.2%.
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This report will likely provide further insight into the state of the labor market and could influence the Fed’s decision-making in the coming months.