Private sector hiring cooled more than expected in December, and wage growth decelerated to its slowest pace in over three years, according to a report released Wednesday by ADP, the payroll processing firm.
Employers added 122,000 jobs last month on a seasonally adjusted basis, down from 146,000 in November and well below the 134,000 forecast by economists surveyed by Econoday. The figure represents the smallest monthly increase since August.
Pay rose 4.6 percent from a year earlier, marking the slowest annual gain since July 2021, a development that could provide reassurance to policymakers concerned about inflationary pressures in the labor market.
“The labor market downshifted to a more modest pace of growth in the final month of 2024, with a slowdown in both hiring and pay gains,” said Nela Richardson, ADP’s chief economist.
Despite the deceleration in hiring, there is little evidence to suggest that layoffs are increasing. Data released by the Labor Department on Wednesday showed that initial claims for unemployment benefits fell to 201,000 for the week ending Jan. 4, well below the 215,000 projected by economists. The figure is the lowest since February 2024, underscoring the labor market’s resilience.
These data points come just days ahead of the government’s official employment report, due on Friday. Economists anticipate that the Bureau of Labor Statistics will report an increase of 155,000 jobs for December, a significant drop from November’s unexpectedly robust gain of 227,000. Historically, ADP’s figures and the BLS’s official count can diverge considerably.
Federal Reserve officials are likely to scrutinize the upcoming jobs report as they weigh their next moves on interest rates. While policymakers have maintained that the labor market remains solid, they are aiming to avoid overtightening monetary policy, which could stifle job growth.
At the same time, central bankers have shown greater confidence that inflation has cooled, even though it remains above their long-term target of 2 percent. The latest ADP figures, showing a moderation in wage growth, could support the view that pay increases are not driving inflation upward.
Employment gains in December were concentrated in a few key sectors. Education and health services led the way with 57,000 new positions, followed by construction, which added 27,000 jobs. The leisure and hospitality sector contributed 22,000, while financial activities added 12,000.
However, some sectors shed jobs. Manufacturing saw a decline of 11,000 positions, while the natural resources and mining sector lost 6,000. Professional and business services recorded a loss of 5,000 jobs.
Nearly all of the job growth came from large companies with over 500 employees, which collectively added 97,000 positions. Businesses with fewer than 50 employees added 5,000 in December. Midsized businesses added 9,000.
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