U.S. private-sector employment experienced a significant jump in July, with 324,000 new jobs created, according to payroll processor ADP. This surge in hiring reflects the growing demand for services such as travel, fine dining, and recreation. Economists had predicted a gain of 175,000 jobs, indicating that the economy is surpassing expectations. Nela Richardson, the chief economist at ADP, noted that the strong labor market is supporting household spending.
While the ADP payroll numbers provide insights into monthly job creation, they have a limited track record of predicting the government’s official employment report. Nonetheless, both reports generally trend in the same direction over time. On Friday, the government is expected to report the creation of 200,000 new jobs in July, including government hires. ADP’s report, on the other hand, excludes government employment.
Key details from the report reveal that nearly two-thirds of the new jobs created in July were in leisure and hospitality, particularly at hotels, restaurants, and other companies in these industries. This sector had experienced a sharp decline during the pandemic but is now slowly recovering to pre-crisis levels. Additionally, there was increased hiring in warehousing and transportation, reflecting the ongoing shift towards online shopping and package delivery. However, the goods-producing side of the economy, including manufacturing, lost 36,000 jobs.
Small and medium-sized firms were responsible for most of the hiring in July, while employment at large companies actually decreased. Although the annual rate of wage growth continued to slow, wages for both job changers and those remaining in their jobs remained significantly above inflation rates.
In the revised figures for June, ADP reported that 455,000 new jobs were created, which was slightly lower than the initially reported 497,000. In contrast, the government reported a much smaller increase of 209,000 jobs for June.
Despite a slight softening in the labor market, the overall jobs market remains strong, exerting upward pressure on wages and possibly inflation. Workers are seeking higher wages not only due to increased leverage but also to keep up with the rising cost of living.
Looking ahead, Neil Dutta, the head of economics at Renaissance Macro Research, expressed uncertainty regarding the ADP data, noting that it suggests a solid jobs market. However, he also pointed out that ADP has consistently reported 41,000 more jobs per month than private nonfarm payrolls on average this year.
In response to this news, the Dow Jones Industrial Average and S&P 500 were set to open lower in Wednesday trades. The yield on the 10-year Treasury rose slightly to 4%.