ADP employment report shows softer job growth, slowing wage gains

Updated at 8:24 am EDT

ADP published its regular monthly estimate of private sector job creation Wednesday as investors continue to focus on softening data in the labor market and its potential impact on near-term rate hikes from the Federal Reserve. 

The payroll processing group said around 177,000 jobs were created in the private sector this month, down from the upwardly-revised tally of 371,000 in July and the smallest increase since March. Economists had expected ADP's National Employment Report to show gains of around 195,000 as hiring in the leisure and hospitality sectors -- key summer jobs drivers -- slows into the autumn months.

Investors are also likely to focus on wage and earnings details provided in the ADP release, which showed a year-on-year increase of 5.9% for those remaining in their positions and 9.5% for those seeking a new role. 

Both readings were the slowest in nearly two years and followed  last month's report that showed pay gains for job-switchers slowed to 10.2% while those remaining in the same role saw gains of 6.2%.

Those figures could prove crucial over the coming months as the Fed looks to slow the pace of wage gains, without a corresponding blunt to overall hiring, as it continues to focus on bringing inflation back to its preferred 2% target. 

"This month's numbers are consistent with the pace of job creation before the pandemic," said ADP's chief economist Nela Richardson. "After two years of exceptional gains tied to the recovery, we're moving toward more sustainable growth in pay and employment as the economic effects of the pandemic recede."

Job openings, meanwhile, fell to the lowest levels in more than two years last month, according to the July Jolts report from the Bureau of Labor Statistics, with 8.3 million positions unfilled and the so-called quits rate slowing to pre-pandemic levels of around 2.3%.

The quits rate, which is a much better guide to future wage growth than the openings-to-unemployed ratio, clearly signals sharply slowing wage growth, consistent with an array of other indicators," said Ian Shepherdson of Pantheon Macroeconomics. "Given that the full effects of the Fed’s tightening to date is yet to work through into the labor market, this suggests to us that any further rate increases would be overkill."

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