Hiring in the Private Sector Surges in December, Beating Expectations
In December, hiring in the private sector exceeded expectations, signaling a strong end to 2023 for the U.S. job market. According to ADP, private payrolls increased by 164,000 during the month, a significant rise from the revised 101,000 in November and surpassing the Dow Jones consensus estimate of 130,000.
Labor Market Remains Tight as Initial Jobless Claims Fall
Additionally, initial jobless claims fell for the final week of 2023, indicating that the labor market remains tight and vibrant. This suggests that companies are reluctant to lay off workers. Notably, the leisure and hospitality sector saw a rebound and added 59,000 positions. This sector had been heavily impacted by the Covid pandemic but has shown signs of recovery in recent months.
Construction and Other Services Contribute to Job Growth
Construction contributed 24,000 jobs to the total, while other services, including dry cleaning and support businesses, added 22,000 positions. Financial activities also experienced an increase of 18,000 jobs. However, manufacturing saw a decline of 13,000 jobs, and information services and natural resources and mining both experienced declines of 2,000 jobs.
Earnings Growth Decelerates but Wage-Price Spiral Risk Diminishes
The pace of earnings growth slowed down again. Those who remained in their jobs saw annual pay increases of 5.4%, while job changers experienced an 8% increase in earnings. ADP’s chief economist, Nela Richardson, stated that the labor market is returning to pre-pandemic conditions and that any risk of a wage-price spiral has diminished.
Regional and Size Breakdowns
Companies with fewer than 50 employees led in job creation, adding 74,000 new positions. Geographically, the West saw an increase of 109,000 jobs, and the Northeast added 94,000 jobs.
Implications for the Federal Reserve and Nonfarm Payrolls Report
The Federal Reserve is closely monitoring the jobs reports to gauge their impact on inflation. The release of ADP’s report comes one day before the Labor Department’s nonfarm payrolls count, which is highly anticipated. The two reports can differ due to variations in methodology. Economists predict that December’s nonfarm payroll growth will reach 170,000.
Hot Take: Positive Signs for the U.S. Job Market
The December ADP report indicates positive signs for the U.S. job market, with hiring in the private sector surpassing expectations and initial jobless claims falling. The rebound in the leisure and hospitality sector is particularly noteworthy, as it reflects a recovery from the impact of the Covid pandemic. Although earnings growth has decelerated, any risk of a wage-price spiral has diminished. The upcoming nonfarm payrolls count will provide further insights into the state of the labor market and its potential impact on inflation.
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