ADP Reports that Private Payroll Growth in July Slowed to 122,000, Falling Short of Expectations

Private sector job growth in the US continued to decelerate in July, with wage increases also slowing to a three-year low, according to a report released by payroll processing firm ADP on Wednesday. The report indicates that companies added only 122,000 jobs during the month, marking the slowest growth rate since January and falling short of the revised 155,000 jobs added in June. This figure also fell below the 150,000 jobs anticipated by economists surveyed by Dow Jones.

ADP’s data also revealed that wages for employees who remained in their positions increased by 4.8% year-over-year, the smallest annual rise since July 2021 and a slight decrease from June’s 4.9% increase. Nela Richardson, ADP’s chief economist, commented that the moderation in wage growth is aligned with the Federal Reserve’s efforts to curb inflation, adding, “If inflation rises again, it won’t be due to labor.”

The release of the ADP report contributed to gains in futures tied to major stock indexes, while Treasury yields experienced a decline. Further positive news on inflation came from the Labor Department’s Bureau of Labor Statistics, which reported that the Employment Cost Index, a key indicator monitored by the Federal Reserve, rose by just 0.9% in the second quarter on a seasonally adjusted basis. This was below the 1.2% increase recorded in the first quarter and lower than the 1% rise predicted by Dow Jones.

These reports may influence the Federal Reserve’s decision-making, with some analysts suggesting the possibility of a rate cut in September.

Job growth in July was primarily concentrated in the trade, transportation, and utilities sector, which added 61,000 jobs, and the construction sector, which added 39,000 jobs. Other sectors with notable gains included leisure and hospitality (24,000), education and health services (22,000), and other services (19,000). However, several sectors, including professional and business services (-37,000), information (-18,000), and manufacturing (-4,000), reported job losses. Small businesses, defined as those with fewer than 50 employees, also experienced a decline, shedding 7,000 jobs in July.

Geographically, the South led with 55,000 new jobs, while the Midwest saw a modest gain of 17,000.

The ADP report precedes the Labor Department’s Bureau of Labor Statistics’ nonfarm payrolls report, which includes government jobs and is expected to show a different trend. Economists are predicting an increase of 185,000 jobs in July, down from June’s 206,000, with the unemployment rate remaining steady at 4.1%.