For inflation to fall, the Federal Reserve needs the U.S. supply of labor to be more in line with demand than it has been in recent years. The job market doesn’t seem to be getting the message.
Data released by the payroll company ADP ahead of Friday’s jobs report from the Bureau of Labor Statistics showed that the labor market is still running far too hot for the Fed’s goals. Private-sector employers added 497,000 jobs in June, nearly double the consensus forecast of 250,000 among economists surveyed by
FactSet.
Currently, economists surveyed by FactSet predict that the BLS report will show nonfarm, private employers added 215,000 jobs in June, with an overall gain in nonfarm jobs of 205,000 positions. So while ADP’s data sometimes differs from the government’s figures, the company’s Thursday report throws economists’ conservative forecasts about the numbers expected Friday into doubt.
“June is traditionally a strong hiring month,” ADP’s chief economist Nela Richardson said Thursday, adding that last month was no exception.
The BLS’s latest Job Openings and Labor Turnover Survey report, also issued Thursday, didn’t exactly point to a significantly cooling labor market either. In May, the U.S. had 40% more job openings than prepandemic levels, although the number did dip slightly to 9.8 million, compared with the 9.9 million forecast.
Yet the pace of hiring remained relatively unchanged, as the BLS recorded 6.1 million new hires in May. And the number of people quitting jobs, which ZipRecruiter’s chief economist Julia Pollak called a more reliable indicator of labor market strength, increased by 250,000 to four million in May.
Overall, there were 5.9 million workers who separated from their employers in May, a number that remained relatively unchanged. About 1.6 million workers were laid off in May, a slight drop from April—and that level is likely to continue falling. The outplacement firm Challenger, Gray & Christmas reported there were about 80,089 layoff announcements in May, but that dropped to just 40,709 in June.
The bottom line is that Thursday’s Jolts report shows a “gradually slowing, yet still-robust labor market, one that is cooler than a year ago but still hot,” wrote Nick Bunker, Indeed Hiring Lab’s research director.
Those numbers aren’t exactly good news for Federal Reserve officials, who are hoping to significantly cool the labor market as they attempt to bring down inflation. If Americans continue to see plentiful jobs and employers lure workers onboard with higher wages, it is unlikely that inflation will continue to moderate. That would force the Fed to continue its agenda of aggressive increases to interest rates.
Stock prices fell and bond yields rose in response to the data. The
S&P 500
was down 0.8% early Thursday afternoon, while the
Dow Jones Industrial Average
had fallen 1.1%. The
Nasdaq Composite
lost 0.9%.
Still, the labor picture is more complicated than the headlines would suggest, and there are nuances that could indicate the Fed’s rate hikes are having an impact, Richardson said. During June, for instance, ADP saw job declines within interest-rate-sensitive industries. There continues to be a pullback in hiring among large employers.
In another somewhat positive sign, initial claims for unemployment benefits came in higher than expected at 248,000 in the week ended July 1. But even though jobless claims have gradually risen during the first half of the year, the rate remains historically low.
Overall, ADP found the pace of hiring is uneven across industries. Lower-paying industries like leisure and hospitality are the ones adding jobs, while those that historically have offered higher wages, such as information and finance, are cutting back.
Fed staff also seem to be looking beyond the headline numbers, suggesting that “job growth may have been weaker than indicated by payroll employment” reports, according to the minutes from the June Federal Open Market Committee meeting released this week. Moreover, Fed officials continue to predict that “employment growth would likely slow further, consistent with their projections of below-trend economic growth,” according to the minutes.
Wage growth is another area where there seems to be some good news for the Fed. ADP reported a substantial slowdown in pay increases. Americans who changed jobs saw pay gains slow to 11.2% in June, the slowest pace of growth since October 2021. Those who stayed in their jobs saw a 6.4% year-over-year pay increase, down from the 6.6% recorded in May, according to ADP.
In fact, Richardson said the industries that had some of the biggest job gains generally also saw declining pay growth, indicating that the labor-supply issues that plagued employers during the Covid-19 pandemic have eased.
Friday’s jobs report will provide more information about wage growth, of course, but during the June FOMC meeting, policy makers noted that the slowdown in pay increases was still too small to fit with the bank’s goal of 2% inflation.
Friday’s job report will be released at 8:30 a.m. Eastern.
Write to Megan Leonhardt at [email protected]
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