Private Job Growth Smashes Expectations As Labor Market Stays Stubbornly Hot

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Private firms shattered investor expectations for job growth in December, adding 235,000 workers mostly in customer-facing industries, according to payroll firm ADP.

After posting their worst job growth since January 2021 in November, with payrolls growing by 127,000 jobs, the labor market surged in December, with companies adding 235,000 jobs, according to ADP. Investors anticipated just 153,000 jobs would be added, and the upside surprise comes as the Federal Reserve struggles to slow a stubbornly hot labor market that some economists argue has exacerbated inflation, according to CNBC.

While job growth did drastically surpass expectations, annual pay growth — 7.3% for those who remained with their job, compared to 15.2% for those who switched — hit its lowest level since March 2022, according to ADP. The Fed has been attempting to reduce demand for labor and slow wage growth via interest rate hikes, with Fed Chair Jerome Powell describing the labor market as “out of balance,” in a Dec. 14 2022 press conference.

“Although job vacancies have moved below their highs and the pace of job gains has slowed from earlier in the year, the labor market continues to be out of balance, with demand substantially exceeding the supply of available workers,” said Powell. “[Federal Open Market Committee] participants expect supply and demand conditions in the labor market to come into better balance over time, easing upward pressures on wages and prices.”

As recently as Wednesday, Neel Kashkari, the president of the Federal Reserve Bank of Minneapolis, wrote that he anticipates further monetary tightening and heightened interest rates in an essay published on Medium.

ADP’s National Employment Report shows employers created 235,000 jobs in December and annual pay was up +7.3% YoY.

Job resurgence was seen in the last two months of 2022 led by consumer-facing service industries. Hiring was strong across small and medium establishments. pic.twitter.com/PwjxWevVB3

— Blake B. Millard, CFA (@BlakeMillardCFA) January 5, 2023

“Unfortunately, the initial surge in inflation is leading to broader inflationary pressures that the Federal Reserve must control,” Kashkari wrote. “For example, nominal wage growth has grown to 5 percent or more, which is inconsistent with our 2 percent inflation target given recent trend productivity growth. Monetary policy is the appropriate tool to bring the labor market back into balance.”

The S&P 500, Dow Jones Industrial Average and Nasdaq Composite all dipped just over 1% midday after the report was published, with investors seeing the report as a sign the Fed was unlikely to relent and cut rates soon, The Wall Street Journal reported.

“[The] Fed pivot in my mind is going to occur when the data is bad, not when the market feels the Fed has tightened enough,” chief investment officer Robert Stimpson of Oak Associates told the WSJ.

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