Employment

The ADP employment data released today gives us a preview of what private payroll growth might look like tomorrow in the BLS employment situation report. The headline private payroll employment gain, based on ADP’s data, is just 54,000 for August, slower than the 106,000 added in July (revised up from the initial report of 104,000) and below expectations of a gain of 65,000. However, August job gains did outpace the weaker May and June readings which resulted in an increase in the 3-month trend from 37,000 in July to 46,000. So while the number does look soft compared to the forecast and the July gain, August hiring appears to have been more solid than what we saw at the end of Q2.

Job growth was seen in both the goods and services sectors with some divergence across industries.

• The private goods sector added 13,000 jobs, the weakest since the sector saw employment decline in May. Within the sector, an increase of 16,000 construction jobs led the way while natural resources & mining added just 4,000 and manufacturing was down -7,000. It is notable that the construction industry saw another decent month of job gains (+15,000 in July) since it is known as a cyclically sensitive segment of the economy.
• The private services sector added 42,000 jobs, continuing to be the primary source of employment growth in the private sector. However, many services industries reported a weak month, and the overall service sector increase in payrolls was driven by one strong industry. That industry was leisure & hospitality which saw an increase of 50,000 jobs in August, building on strength that it saw earlier in the summer (July: +46,000, June: +32,000). Outside of that industry, smaller gains in information (+7,000) and professional services (+15,000) were offset by declines in trade, transport & utilities (-17,000), education & health (-12,000), and financial activities (-2,000).

Another positive takeaway from the data release this morning is that the growth in private employment was seen across all firm sizes. Mid-sized firms saw the strongest growth at 25,000, but large and small firms were not far behind with gains of 18,000 and 12,000, respectively. Even though it was the weakest, the growth in small business employment is notable because, like construction employment, it is cyclically sensitive. Thus, we don’t have to worry about a leading signal flashing red. Though it is worth noting that small business employment is actually slightly down over the last month since it dropped -47,000 in June, offsetting the 24,000 small business jobs added in August and July.

Pay Growth

The other component of the ADP National Employment Report is ADP’s measures of pay growth. Over the last two years, the measures have been mostly stable and very slightly decreasing. The August data did not show a divergence. Annual pay growth for “job changers” remained unchanged at 7.1%, remaining stubbornly high so far this year. Annual pay growth for “job stayers” ticked down to 4.4%, another signal of a slow deceleration in compensation. It is worth noting that ADP’s pay growth measures are very new, with data only going back to 2020. So it’s hard to tell how these readings compared to pre-pandemic periods. If there is anything to take away from this data, it’s that in the near-term there hasn’t been any major changes in employee compensation which is consistent with the stickiness we have seen in the BLS’s average hourly earnings data.