A private reading of business hiring fell in November at the slowest pace in nearly two years, raising the possibility that job growth is starting to slow in response to the Federal Reserve’s hawkish policy .
Businesses created 127,000 new jobs in November, according to a new report from ADP Research Institute (opens in a new tab) in collaboration with the Stanford Digital Economy Lab. This is the lowest hiring rate since January 2021 and well below economists’ estimates for the creation of 200,000 new jobs. Wage gains – a key metric to help guide Fed Policy – also moderate in November.
“Turning points can be hard to grasp in the labor market, but our data suggests Federal Reserve tightening is having an impact on job creation and wage gains,” said ADP’s chief economist. . Nela Richardson said in a press release (opens in a new tab). “Also, companies are no longer in hyper-replacement mode. Fewer people are quitting and the post-pandemic recovery is stabilizing.”
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ADP’s monthly data always comes out two days before the Bureau of Labor Statistics (opens in a new tab) publishes its official report on non-farm payrolls. Market participants are on the lookout for any emerging signs of weakness in a labor market that is contributing to rising wages and helping to fuel the worst inflation in four decades.
As for where hiring was weakest and strongest, the industries most sensitive to interest rates posted the worst November numbers. For example, construction hiring fell by 2,000 last month, while manufacturing hiring fell by 100,000, ADP said. Other sectors where hiring has been weak include professional and business services, financial activities and information technology.
On the bright side of the labor market, hiring was strongest in the leisure and hospitality industries. These businesses created 224,000 new jobs, helped by the continued rebound from COVID-19 lockdowns. Commerce, transportation and utilities companies hired 62,000 workers last month, while natural resources and mining added 16,000 workers to their payrolls. Hiring in education and health services was also positive in November, with the creation of 55,000 new jobs.
By firm size, medium-sized firms with 50 to 239 employees were the most active in hiring new workers. These establishments added 283,000 employees in November. The smallest companies, those with 1 to 19 employees, were also hiring. But companies of all other sizes saw a sharp drop in hiring.
As for reading the ADP report to get an idea of what Friday’s jobs report will tell us: forget it. The former has a poor track record when it comes to predicting the latter. The market is praying for emerging signs of weakness when the nonfarm payrolls report comes out on Friday – the idea being that it will push the Fed to slow its rate hike path – but that remains to be seen.
Economists polled by Bloomberg expect the November payroll to rise by 200,000 and the unemployment rate to remain unchanged at 3.7%.
November’s ADP report shows the Fed’s policy to cool the economy is working at least directionally, but there’s no substitute for official numbers from the Labor Department. Until then, market participants will just have to sit tight.