ADP employment report shows sharp slowdown in private payrolls growth in August with just 177,000 new jobs added – well below the 200,000 expected by economists

Private sector employment in the United States slowed more than expected in August, the latest indication that the labor market is losing momentum on the back of higher interest rates.

Private payrolls rose by 177,000 jobs last month, an ADP National Employment report found Wednesday, well below the 200,000 new jobs economists had expected.

The data for July was also revised upwards, showing 371,000 jobs added instead of the previously reported 324,000.

The labor market is gradually slowing as it adjusts to a series of aggressive rate hikes by the Federal Reserve since March 2022, while the central bank is facing stubborn inflation.

The ADP report – produced by the country’s largest private payroll company – shows that last month’s hiring slowdown was largely driven by slowing job creation in the leisure and hospitality sector, with hotels and restaurants attracting fewer new hires.

Private payrolls rose by 177,000 jobs last month, the ADP National Employment Report found Wednesday, well below the 200,000 new jobs economists had expected.

While the delay in hiring may be unwelcome news for job seekers, it bolsters expectations that the Federal Reserve will hold interest rates unchanged at next month’s meeting.

Before committing to pausing their rate hikes, Fed policymakers have been looking for a cooling in the labor market, which has fueled inflation via red-hot wage growth.

The ADP report found that people who stayed in the same job saw an annual wage increase of 5.9 percent in August, the slowest growth since October 2021. For job changers, wage growth also slowed, to 9.5 percent.

On Wednesday, the Commerce Department also released its second estimate of US economic growth for the past quarter, revised down from its original reading.

Gross domestic product grew 2.1 percent year on year from April through June, less than the initial estimate of 2.4 percent, the report said.

A measure of consumer prices in the report also showed a cooling in inflation, which could ease pressure on the Fed to raise rates further.

“Lower growth and weaker price increases are good news for the Federal Reserve,” Eugenio Aleman, chief economist at Raymond James, told the Associated Press.

While the slowdown in hiring may be unwelcome news for job seekers, it reinforces expectations that the Federal Reserve will halt rate hikes next month.

As of Wednesday morning, financial markets estimated a 90 percent chance that the Fed will leave rates unchanged at its next meeting, according to the CME Group’s FedWatch tool.

Separately, the government reported on Tuesday that the number of job vacancies fell by 338,000 in July to 8.827 million, the lowest level since March 2021.

There were 1.51 job openings for every unemployed in July, the lowest rate since September 2021, compared to 1.54 in June, according to the Department of Labor’s Job Openings and Labor Turnover Survey (JOLTS report).

A Conference Board survey also found that consumer perceptions of the job market were less positive in August.

The ADP report anticipates Friday’s release of the Department of Labor’s more comprehensive and closely monitored report on the employment situation for August.

In recent months, the ADP report has not proven to be a reliable gauge in forecasting the private payroll segment in the federal employment report.

According to a Reuters survey of economists, the Bureau of Labor Statistics is expected to report that private payrolls rose by 150,000 jobs in August.

Including government employment, the total number of nonfarm payrolls will have increased by 170,000 jobs in August, following an increase of 187,000 in July.