The latest ADP National Employment Report, released on Wednesday, paints a positive picture of the U.S. labor market, indicating that job changers experienced a pay increase for the first time in a year. This development comes alongside an uptick in private sector employment, highlighting the continued strength of the world’s largest economy.
According to the report, companies added 140,000 new employees in February, showing improvement from the revised figures of 111,000 in January. Notably, workers who switched jobs saw their pay rise by 7.6%, marking a 0.4% increase compared to the previous month and the first such increase in approximately 12 months. Conversely, pay gains for workers who remained in their current positions slowed to 5.1%, representing the lowest increase since August 2021, as per ADP data.
The report also revealed that in February, employees who stayed at their jobs earned a median pay of nearly $59,000 annually. Despite concerns among Americans regarding their financial conditions in recent months, economists remain optimistic, suggesting that while the labor market may experience some deceleration, the likelihood of widespread layoffs in the coming year appears low.
Overall, the ADP National Employment Report provides encouraging insights into the resilience of the U.S. labor market, indicating both job growth and wage increases, albeit with variations in pay gains depending on job stability. These findings offer a positive outlook for the economy, despite ongoing uncertainties and challenges.
Nela Richardson, ADP’s chief economist, noted that while job gains remain robust, pay increases are gradually declining but still outpace inflation. This dynamic suggests that the labor market remains dynamic but may not significantly influence the Federal Reserve’s interest rate decisions this year.
The Federal Reserve closely monitors wage growth and its potential impact on inflation, which has been persistently high. In response to soaring inflation in the summer of 2022, the Fed implemented aggressive interest rate hikes to curb price increases. Although inflation has moderated somewhat, it remains above the Fed’s 2 percent target. The consequent rise in interest rates has led to increased borrowing costs across various sectors, including housing.
Currently, the Fed’s interest rate stands at 5.25 to 5.5 percent, the highest level in over two decades. Jerome Powell, the Fed Chair, indicated that policymakers may have concluded their rate hikes and could potentially reduce borrowing costs later this year, provided inflation progresses toward the target of 2 percent.
Powell emphasized that the timing of any reduction in the target range would depend on gaining greater confidence in inflation moving sustainably toward the target. Economists anticipate the first reduction in borrowing costs by the summer.
Despite tight monetary policy impacting business investment, employers have continued to hire steadily, supporting the economy. The ADP data illustrates job gains across various sectors, although there were some exceptions. While the goods-producing sectors added 30,000 jobs overall, there were declines in natural resources and mining. Conversely, the service industry saw an increase of 110,000 workers, although there was a slight loss of 2,000 jobs in the information sector.
Powell commended the strength of the job market in his statement to Congress, highlighting its role in narrowing disparities in employment and earnings across different demographic groups over the past two years.