ADP Employment
The ADP Employment Report is a monthly measure of private-sector payrolls in the U.S., compiled by the payroll services company ADP. It provides an estimate of job growth by tracking employment changes across various industries, excluding government jobs. As a leading indicator, it's important because it offers insight into the health of the labor market and helps predict broader employment trends ahead of the official government reports.
In August, private-sector employment in the U.S. grew by 99,000 jobs, marking a continued cooling in the labor market as job creation slowed for the fifth consecutive month. The modest job growth of 99,000 in August fell significantly below last month's increase of 111,000 jobs and was even further below the median forecast of 140,000. This slowdown highlights a sharper deceleration in the private labor market than expected. The goods-producing sector added 27,000 jobs, with gains in construction (27,000) and natural resources/mining (8,000), but a decline in manufacturing (-8,000). The service-providing sector saw a larger increase of 72,000 jobs, with notable growth in education/health services (29,000), financial activities (18,000), and other services (20,000), while professional/business services (-16,000) and information (-4,000) experienced losses.
Wage growth remained stable, with annual pay rising by 4.8% year-over-year. Regionally, the South led job gains with 55,000 new positions, followed by the West (20,000), Northeast (24,000), and Midwest (7,000). Large establishments with 500+ employees added 42,000 jobs, and medium-sized establishments (50-499 employees) contributed 68,000 jobs. However, small establishments saw a decline of 9,000 jobs, driven by losses in firms with 20-49 employees.
Nela Richardson, Chief Economist at ADP provided these insightful remarks following the report, “The job market's downward drift brought us to slower-than-normal hiring after two years of outsized growth. The next indicator to watch is wage growth, which is stabilizing after a dramatic post-pandemic slowdown.” Individuals should closely monitor labor market indicators, as they directly influence the Federal Reserve and Jerome Powell's decisions on cutting interest rates. The Fed's main objective, known as the dual mandate, focuses on achieving maximum employment and maintaining stable prices. These two goals shape the Fed's monetary policy to ensure a balanced and healthy economy, making job data a critical factor in the Fed's decisions. As a result, anyone exposed to equity markets should closely watch employment and inflation reports.
Initial Jobless Claims
Initial jobless claims are a weekly measure of the number of new applications for unemployment benefits, serving as an early indicator of labor market health and jobless trends. The number of Americans filing for jobless benefits dropped by 5,000 to 227,000 for the week ending August 31. This number marks the lowest level since early July and was below economists' projections of 230,000 claims. The decline in jobless claims, along with shrinking unemployment rolls, alleviates worries about a weakening labor market and reduces the urgency for the Federal Reserve to implement a larger rate cut this month.
Although there are signs of a slowdown, such as fewer job openings and a drop in August private payrolls, layoffs remain rare. As a result, economists still anticipate that the Fed will begin its easing cycle with at least a quarter-point rate cut, though some are projecting a 50 basis point reduction in September. Additionally, economists expect Friday morning’s employment report to show an increase of around 160,000 nonfarm payroll jobs, following July's weaker growth of 114,000, and forecast the unemployment rate to fall slightly to 4.2%. The services sector, according to an ISM report, continues to expand steadily, but companies are increasingly cautious about hiring, with some freezing positions or not replacing workers who leave. Overall, the economy appears to be slowing gradually, with no imminent signs of recession, as inflation and labor costs remain controlled.
U.S. Productivity Revision
The U.S. Productivity Revision Report provides updated data on the efficiency of labor in producing goods and services, typically measured as output per hour worked. It revises previous estimates based on more complete information, offering a clearer view of trends in economic efficiency and labor costs. This report is an important economic indicator because higher productivity can signal economic growth without inflationary pressures, while lower productivity may indicate rising costs and potential inflation risks. In the second quarter, U.S. worker productivity rose at a revised annual rate of 2.5%, up from the initial estimate of 2.3%, with overall output increasing by 3.5%. Over the past year, productivity has grown by 2.7%, while unit labor costs rose by just 0.3%. The smaller-than-expected rise in labor costs reflects slower compensation growth, which was revised down to 3%, and inflation-adjusted hourly compensation saw only a slight 0.1% gain. These revisions follow an upgraded 3% growth rate for the overall economy in Q2, with automation and AI driving the productivity gains. Federal Reserve officials remain cautious, requiring more data to confirm the trend, but strong productivity suggests a possible "soft landing" scenario. A soft landing refers to a scenario in which the economy slows down just enough to curb inflation without triggering a recession. Investors can watch the U.S. Productivity to gain further insights into the possibility of a soft landing scenario.
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