US private sector employers added 184,000 jobs in March, far more than expected, ADP said Wednesday.
The release, a tantalizing amuse-bouche ahead of NFP on Friday, suggested the US labor market’s still plenty firm. That’s either good news or bad news depending on how wedded you were to a June rate cut from the Fed.
Consensus was looking for 150,000 from the ADP print which, I should note, isn’t necessarily a reliable predictor of private hiring in the government’s report.
March’s headline was the strongest since July. February’s print was revised higher to show a 155,000 gain. The three-moving average now sits at 150,000, the briskest in six months.
Gains were evenly distributed, led by construction, trade & transportation and, of course, leisure and hospitality. Professional services was the only sector to record job losses.
In a somewhat disconcerting development if you’re the Fed, pay growth for so-called “job switchers” picked up dramatically — and I do mean dramatically.
Recall that pay growth for job changers rose in February for the first time since November of 2022 in ADP’s data. March’s increase thus counted as the second consecutive and as the figure shows, it was quite pronounced.
I’d be inclined to suggest that’s noise, but ADP chief economist Nela Richardson didn’t allude to any kind of data quirk. “March was surprising not just for [job-changer] pay gains, but the sectors that recorded them,” she said. Those sectors: Construction, financial services and manufacturing.
The rate of pay growth for Americans switching jobs last month was 10%. Conceptually, that’s the reward for quitting, and it’s apparently the widest since June.
If ADP’s pay growth update is even directionally accurate, it’s concerning. Double-digit pay growth for job changers against 5% increases for those who stay in their current role is conducive to labor market churn, precisely what the Fed’s trying to avoid given the read-through for consumer price growth.
Bottom line: The ADP release had the potential to exacerbate the tension between rates and equities on display earlier this week and could very well lead to a further reduction in market-implied rate cuts for 2024.
Richardson sounded cautious on Wednesday. “Inflation has been cooling, but our data shows pay is heating up in both goods and services,” she said.
