A private reading of business hiring fell in November to the slowest pace in nearly two years, raising the possibility that job growth is beginning to cool in response to hawkish Federal Reserve policy.
Businesses added 127,000 new jobs in November, according to a new report by ADP Research Institute in collaboration with the Stanford Digital Economy Lab. That was the weakest rate of hiring since January 2021 and came in well short of economists' estimates for the creation of 200,000 new jobs. Wage gains – a key metric in helping to guide Fed policy – also moderated in November.
"Turning points can be hard to capture in the labor market, but our data suggest that Federal Reserve tightening is having an impact on job creation and pay gains," ADP Chief Economist Nela Richardson said in a press release. "In addition, companies are no longer in hyper-replacement mode. Fewer people are quitting and the post-pandemic recovery is stabilizing."
ADP's monthly data always comes out two days before the Bureau of Labor Statistics releases its official nonfarm payrolls report. Market participants are looking for any incipient signs of weakness in a labor market that's contributing to higher wages and helping fuel the worst inflation in four decades.
As for where hiring was weakest and strongest, the most interest-rate sensitive industries posted the worst November figures. For example, hiring in construction fell by 2,000 last month, while manufacturing hiring declined by 100,000, ADP said. Other areas of hiring weakness included professional and business services, financial activities and information technology.
On the brighter side of the job market, hiring was strongest in the leisure and hospitality industries. These businesses added 224,000 new jobs, helped by the continuing rebound from COVID-19 lockdowns. Trade, transportation and utilities companies boosted hiring by 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 new job creation of 55,000 positions.
By business size, mid-sized companies with 50 to 239 employees were the most active in hiring new workers. These establishments added 283,000 employees in November. The smallest businesses, or those with 1 to 19 employees, were also hiring. But businesses of all other sizes saw net declines in hiring.
As for reading the ADP report to get a bead on what Friday's jobs report will tell us: forget it. The former has a poor track record of predicting the latter. The market is praying for emergent signs of weakness when the nonfarm payrolls report comes out on Friday – the idea being that it will push the Fed to slow its path of rate hikes – but that very much remains to be seen.
Economists surveyed by Bloomberg forecast November payrolls to grow by 200,000 and the unemployment rate to remain unchanged at 3.7%.
The November ADP report shows that Fed policy to cool the economy is working at least directionally, but there's no substitute for the official Labor Department figures. Until then, market participants will just have to sit tight.
Dan Burrows is Kiplinger's senior investing writer, having joined the august publication full time in 2016.
A long-time financial journalist, Dan is a veteran of SmartMoney, MarketWatch, CBS MoneyWatch, InvestorPlace and DailyFinance. He has written for The Wall Street Journal, Bloomberg, Consumer Reports, Senior Executive and Boston magazine, and his stories have appeared in the New York Daily News, the San Jose Mercury News and Investor's Business Daily, among other publications. As a senior writer at AOL's DailyFinance, Dan reported market news from the floor of the New York Stock Exchange and hosted a weekly video segment on equities.
Once upon a time – before his days as a financial reporter and assistant financial editor at legendary fashion trade paper Women's Wear Daily – Dan worked for Spy magazine, scribbled away at Time Inc. and contributed to Maxim magazine back when lad mags were a thing. He's also written for Esquire magazine's Dubious Achievements Awards.
In his current role at Kiplinger, Dan writes about equities, fixed income, currencies, commodities, funds, macroeconomics, demographics, real estate, cost of living indexes and more.
Dan holds a bachelor's degree from Oberlin College and a master's degree from Columbia University.
Disclosure: Dan does not trade stocks or other securities. Rather, he dollar-cost averages into cheap funds and index funds and holds them forever in tax-advantaged accounts.
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