U.S. private payrolls growth slows in August-ADP

U.S. private payrolls increased moderately in August, according to the ADP National Employment report, which likely exaggerates the slowdown in the labor market as government data continues to point to strong demand for workers and very tight conditions.

Private employment rose by 132,000 jobs in August after increasing 268,000 in July, the ADP report showed on Wednesday.

“Our data suggests a shift toward a more conservative pace of hiring, possibly as companies try to decipher the economy’s conflicting signals,” said Nela Richardson, chief economist at ADP. “We could be at an inflection point, from super-charged job gains to something more normal.”

Government data on Tuesday showed that there were 11.2 million job openings on the last business day of July, with two openings for every unemployed person. Despite the Federal Reserve’s rapid pace of interest rate increases to quell inflation, there have been no widespread layoffs, with weekly jobless claims still at considerably low levels.

The ADP report was suspended for June and July while the company revamped the methodology for the data after a poor record predicting the private payrolls count in the Labor Department’s Bureau of Labor Statistics employment report.

The ADP described the new report, now jointly developed with the Stanford Digital Economy Lab, as “an independent indicator and complementary to government data” and not considered a forecast of the BLS private payroll number. Historical data for the past 12 years has been benchmarked.

Economists were skeptical that the new ADP report would be a reliable labor market indicator. The new report contains only one business cycle, which Capital Economics said limited the usefulness of the series in gauging turning points.

“The new series paints a markedly different picture of employment than both the official household and establishment surveys,” said Michael Pearce, a senior U.S. economist at Capital Economics in New York.

“For example, during the initial stages of the pandemic, the new ADP payroll measure fell by less than 7 million, approximately a third the size of the decline on the official measures. The subsequent recovery in the ADP figures has been correspondingly weaker.”

ADP’s Richardson said it was important to look at the overall trend, noting that the two surveys were capturing the labor market from different angles. In the BLS survey a person is counted as employed if they received pay during the week that includes the 12th day of the month. The ADP survey asks how many people were on the company’s payroll during that period.

Job gains last month were concentrated in the services sector, which added 110,000 positions. Employment in the goods producing industry increased by 23,000 jobs.

The report was published ahead of the BLS’ more comprehensive and closely watched employment report for August on Friday. According to a Reuters survey of economists, private payrolls likely increased by 300,000 jobs in August after rising by 471,000 in July.

With no employment gains in the government sector anticipated, that would leave overall nonfarm payrolls gains at 300,000. The economy created 528,000 jobs in July.

“I don’t think the ADP number tells us too much about the upcoming jobs report on Friday,” said Jeffrey Roach, chief economist at LPL Financial in Charlotte, North Carolina. “However, both reports are supporting the same narrative, the labor market is slowing as businesses cut back on hiring during this uncertain period of slow growth and high inflation.”