In an unexpected turn of events, U.S. companies scaled back hiring in November, revealing signs of a softening labor market amid the backdrop of elevated interest rates. The ADP National Employment Report, released on Wednesday, disclosed that companies added 103,000 jobs last month. This falls below the 130,000 gain predicted by economists surveyed by Refinitiv and is slightly lower than the revised 106,000 increase reported in October.

Labor Market Faces Headwinds

The subdued hiring activity follows an aggressive tightening campaign by the Federal Reserve, which has raised interest rates to their highest level since 2001. Fed officials, led by Chair Jerome Powell, have indicated the possibility of at least one more rate hike this year, emphasizing a commitment to maintaining elevated rates as they assess the trajectory of inflation.

Wage Growth Decelerates

In a potential nod to the Fed’s efforts to curb inflation, the report reveals a deceleration in wage growth. Annual pay increased by 5.6% in November, marking the 14th consecutive month of slowing growth. This figure represents the lowest level of pay growth since September 2021. Notably, for workers changing jobs, wages climbed 8.3%, a marginal decrease from the previous month’s 8.4%.

Industry Insights

The trade, transportation, and utilities industries spearheaded job gains last month, contributing 55,000 new employees. Other sectors, including education and health services, financial activities, and information, also experienced notable gains. However, these were offset by losses in manufacturing, leisure and hospitality, and professional and business services.

Nela Richardson, Chief Economist at ADP, pointed out, “Restaurants and hotels were the biggest job creators during the post-pandemic recovery. But that boost is behind us, and the return to trend in leisure and hospitality suggests the economy as a whole will see more moderate hiring and wage growth in 2024.”

Anticipation for Labor Department’s Report

The ADP report precedes the eagerly awaited November jobs report from the Labor Department, scheduled for release on Friday. Economists anticipate the report will reveal that employers added 180,000 workers in November, following a gain of 150,000 in October. The unemployment rate is expected to remain steady at 3.9%.

It’s essential to note that ADP numbers can differ significantly from the official government count and have historically been considered an unreliable indicator of future trends. The softer-than-expected hiring data raises questions about the resilience of the labor market as the economy navigates the challenges posed by inflation and interest rate adjustments.

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