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Key Takeaways
- ADP reports that 127,000 jobs were added to the economy in November.
- Wages also grew. However, there has been a slowdown in the growth rate for a few months.
- Interest rates will likely increase as the Federal Reserve wants to pull inflation back down to a sustainable level.
The ADP November jobs report was released on November 30, 2022. It offered a little hope to investors and economists that the Federal Reserve might start slowing the pace of interest rate hikes.
However, the fact that wage growth continues to be strong is discouraging. Here is a detailed look at the ADP jobs report and what this means for future interest rate hikes.
Results of the latest jobs report
The ADP November jobs report showed 127,000 private sector jobs added to the economy, representing the slowest month of job creation since January 2021. Economists predicted an addition of 200,000 jobs based on the previous month’s results.
In October 2022, a total of 239,000 jobs were added. These numbers suggest the Federal Reserve’s efforts to slow down the economy are starting to bear results.
The November jobs report from the Bureau of Labor Statistics showed 263,000 nonfarm payroll jobs were added to the economy, continuing a trend of modest job gains. In October 2022, a total of 261,000 jobs were added.
These numbers suggest the Federal Reserve will continue its efforts to slow down the economy by raising interest rates at the next Federal Reserve meeting in December.
The unemployment rate remained unchanged at 3.7% and has stayed between 3.5% and 3.7% since March 2022.
Increase in wage growth
Wages increased in November, but at a more modest pace than in previous months. This was the fifth straight month of slowing wage growth and the slowest increase since January.
People who stayed in their current jobs saw a 7.6% change in their wages, while those who changed jobs saw a 15.1% increase in their pay.
Industries that saw the most significant wage growth include construction, which came in at 6.8%, and leisure and hospitality, which increased by 10.8%.
Furthermore, wage growth for natural resources and mining grew by 7.8%, manufacturing increased by 7.5%, and trade, transportation, and utilities increased by 8.1%.
Industries growing and shrinking
The ADP jobs report showed that many sectors continue to add jobs. Some of the largest gains are from leisure and hospitality services, with an increase of 224,000 jobs.
Education and health services added 55,000 jobs, while trades, transportation, and utilities added 62,000. Natural resources and mining saw an increase of 16,000 jobs, and other services accounted for 8,000 jobs.
Certain sectors saw declines in jobs, with manufacturing being the largest. Manufacturing jobs decreased by 100,000, and construction employment was down by 2,000 jobs.
Professional business services declined by 77,000 jobs, financial activities by 34,000, and information employment fell by 25,000.
Looking regionally, the Northeast added 158,000 jobs, and the West added 12,000 jobs. The South lost 2,000 jobs, and the Midwest lost 41,000 jobs.
Small employers with up to 49 employees and large employers with over 500 employees shed jobs at a rate of 51,000 for small businesses and 68,000 for large companies. However, medium-sized businesses added 246,000 jobs.
What this means for interest rates moving forward
The fact that the economy as a whole has yet to shed jobs concerns the Federal Reserve since job growth is an inflation factor. The Fed stated that it sees the unemployment rate increasing to 4.4% in 2023. This would mean close to 1.5 million more workers would lose their jobs.
To put this into context, over eight million people lost their jobs during the Great Recession from December 2007 to June 2009.
While the stock market is hoping that the Fed will ease the aggressiveness of the rate hikes, this jobs report only adds a little to fuel that hope. As long as employers continue to add new jobs and wages grow, the Fed will be forced to continue raising interest rates.
The good news, however, is other reports have shown a slowdown in the growth of inflation. The Consumer Price Index (CPI) and the Producer Price Index (PPI) were below estimates last month. If more positive data continues, the Fed might slow the rate hikes.
The key here is a continuation of slowing inflation data. Earlier this year, the CPI report came in weaker than expected. Many people were quick to conclude that the Federal Reserve won the battle.
However, the following month, inflation spiked much higher. The next CPI report on December 13, 2022, could have an outsized impact on the timing of this likely, some say pending, recession.
What this means for investors
If the next CPI report is weaker than expected, the stock market will react positively, assuming the Fed will ratchet down the pace of interest rate increases. It’s essential to understand this only means the pace of the hikes will slow, not that the Fed has any plans to stop raising rates.
Fed Chairman Jerome Powell has stated he sees the benchmark target rate to be “somewhat higher” than the median projection of 4.6% in 2023. With the benchmark at 3.75% to 4%, the Fed can raise rates many more times next year, albeit slowly, to get to this level.
On the other hand, if the CPI report comes in hotter than expected, the stock market will likely drop significantly as more aggressive hikes will continue, more likely.
Regardless of the following CPI report, investors must also pay attention to the upcoming jobs reports. You can’t look at a single report and declare inflation is under control. You need to review all the data. The jobs report is a key data point.
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Bottom Line
The latest ADP jobs report did offer some encouragement as it shows private sector employment could be slowing. However, the national jobs report from the Bureau of Labor Statistics showed that employers continue to add jobs.
In either case, the Federal Reserve will likely keep pressing ahead with additional rate hikes. While there are some signs that inflation might be slowing, there are still other signs that the Fed has a lot of work to do.
Both investors and economists will have to pay attention to the upcoming economic reports released this month to see if the Fed is getting inflation under control or if higher rates than anticipated will become a reality.
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Source: https://www.forbes.com/sites/qai/2022/12/10/december-2022-jobs-report-update-adp-jobs-report-trends/