"Small non-farm" fell short of expectations! The U.S. ADP employment in July only increased by 44,000, the lowest this year, making Friday's non-farm data crucial

Author: Zhang Yaqi, Wall Street Journal

The growth of private employment in the U.S. in July was significantly below expectations, indicating a cooling momentum in the labor market, but wage growth remains resilient, and the overall employment situation remains stable.

Data released by the ADP Research Institute on Wednesday showed that the private sector added 44,000 jobs in July, below the 65,000 expected by Bloomberg economists, marking the lowest level this year, down from a revised 95,000 in June.

Despite the slowdown in hiring, the report also indicated that wage growth for job switchers accelerated to the strongest level in nearly a year. ADP Chief Economist Nela Richardson noted, "The typical hiring pattern is changing, and employers are responding to shifts in the macroeconomic environment."

The U.S. government's non-farm payroll report, to be released on Friday, is highly anticipated by the market. If the data corroborates, the current employment trend will support the Federal Reserve's continued focus on inflation, which remains high.

Employment Growth Hits Year-to-Date Low, Goods-Producing Sector Under Pressure

ADP data shows that the private sector added 44,000 jobs in July, not only below all economists' predictions in the Bloomberg survey but also the lowest since January of this year, significantly down from the revised 95,000 in June. From an industry distribution perspective, the goods-producing sector saw a net decrease of 3,000 positions, indicating pressure on labor demand in certain areas of the real economy.

The ADP report is based on payroll data covering over 26 million U.S. private sector employees, jointly released by the ADP Research Institute and the Stanford Digital Economy Lab.

While the employment increase has slowed, wage data presents another picture. The report shows that wages for job switchers increased by 7% year-on-year, the fastest growth rate in nearly a year; wages for retained employees remained at a growth rate of 4.4%.

Nela Richardson stated in a statement, "Job switchers are highly sensitive to real-time economic conditions, and their rapid wage growth indicates supply constraints in certain areas of the labor market." This signal suggests that despite the overall slowdown in employment growth, structural tensions in the labor market have not been eliminated.

Federal Reserve's Stance and Friday's Non-Farm Data in Focus

Before the release of the ADP report, Federal Reserve Chair Waller described the job market as "robust" and "steady" at a press conference last week. The Federal Open Market Committee (FOMC) kept interest rates unchanged, but three officials voted in favor of a rate hike, indicating ongoing internal divisions.

The market is currently awaiting confirmation from Friday's official government non-farm payroll report. Bloomberg's survey shows that economists expect 80,000 non-farm jobs (including the public sector) to be added in July, an improvement from June. If the data aligns with the ADP report's trend, it will further reinforce the market's judgment that "the labor market is robust enough to support the Federal Reserve's focus on combating inflation," directly impacting expectations for the Fed's policy path.