Data released this morning provided fresh evidence that the labor market is softening. First, the ADP national employment report estimated that 122k private jobs were created during the month of July, below the expected 150k and also below last month’s 155k. The drop was led by service jobs, while goods-producing jobs rebounded slightly from last month. July’s monthly tally was the lowest since January of this year, and it caused the 12-month moving average to drop to the lowest level in over 3 years. The ADP report is considered a preview of the official Bureau of Labor Statistics (BLS) nonfarm payrolls report, which is scheduled to be released on Friday. The current expectation is for nonfarm payrolls to come in at 175k, down from 206k the prior month.
ADP Private Payrolls (Monthly Change) with 12-Month Moving Average
Source: Automated Data Processing, Inc., as of 7/31/2024
The other notable datapoint released today was the BLS’s Employment Cost Index (ECI) for the second quarter, which came in at 0.9% compared to an estimate of 1.0% and last quarter’s 1.2%. While a 0.9% quarterly increase only takes us back to Q4 of last year, the 4-quarter moving average slipped to the lowest level in over 2 years. The ECI is the Fed’s preferred measure of wage inflation, because unlike other measures, it doesn’t get distorted by shifts in the composition of employment among occupations and industries. As such, today’s report should be very welcomed by a Fed that has been looking for more evidence that it is time to start cutting rates. A July rate cut remains very unlikely (the decision is due today), but today’s data likely cements the already high probability that the Fed will make a move at the next meeting in September.
Employment Cost Index with 4-Quarter Moving Average
Source: Bureau of Labor Statistics, as of 7/31/2024
Sauro Locatelli CFA, FRM®, SCR®
Director of Quantitative Research
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