Private sector employment cooled more than expected in December, with wage growth slowing to its slowest pace in more than three years, according to a report released Wednesday by payroll firm ADP.
Employers added a seasonally adjusted 122,000 jobs last month, down from 146,000 in November and well below the 134,000 expected by economists polled by Econoday. This figure is the smallest monthly increase since August.
Wages rose 4.6% year-on-year, marking the slowest annual increase since July 2021, a development that could reassure policymakers concerned about inflationary pressures in the labor market.
“The labor market shifted down to a slower pace of growth in the final months of 2024, with both employment and wage growth slowing,” said Nela Richardson, chief economist at ADP.
Despite the slowdown in hiring, there is little evidence that layoffs are increasing. The number of new applications for unemployment benefits fell to 201,000 for the week ending Jan. 4, well below the 215,000 expected by economists, according to data released Wednesday by the Labor Department. This figure is the lowest level since February 2024 and highlights the resilience of the labor market.
These data points were released just days before the government's official jobs report, due out on Friday. Economists expect the Bureau of Labor Statistics to report a job gain of 155,000 in December, a sharp drop from November's unexpectedly strong 227,000. Historically, ADP numbers and official BLS numbers can differ significantly.
Fed officials are likely to scrutinize future employment data as they consider future moves on interest rates. While policymakers insist the labor market remains strong, they aim to avoid excessive monetary policy that could stifle job growth.
At the same time, central bankers are expressing more confidence that inflation is falling, although it remains above the long-term target of 2%. The latest ADP figures show that wage growth is modest, potentially supporting the view that rising wages are not driving up inflation.
Employment gains in December were concentrated in a few key sectors. Education and health services led the way with 57,000 new jobs, followed by construction, which added 27,000 jobs. The leisure and hospitality sector increased by 22,000 people, and the financial activities sector increased by 12,000 people.
However, employment is declining in some sectors. The manufacturing sector saw a decline of 11,000 jobs, while the natural resources and mining sector saw a decline of 6,000 jobs. Professional and business services recorded 5,000 job losses.
Almost all of the employment growth came from large companies with more than 500 employees, which added a total of 97,000 jobs. Businesses with fewer than 50 employees added 5,000 people in December. Medium-sized companies increased by 9,000 people.
