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July Job Growth Slumps: Private Sector Falls Short at 122K

July Job Growth Slumps: Private Sector Falls Short at 122K

Hiring by U.S. companies slowed more than anticipated in July, signaling a cooling labor market amid higher interest rates, as highlighted by the ADP National Employment Report released on Wednesday. The labor market’s deceleration is becoming more apparent, missing the 150,000 job gain that economists surveyed by LSEG had predicted. Instead, job growth clocked in at a significantly lower figure. This is a promising sign for the Federal Reserve, which has been striving to temper inflation through its monetary policies.

One of the notable points from the report is the drop in wage growth, which declined slightly to 4.8%—the slowest pace in three years. This deceleration in wage growth is significant because wages are a key driver of inflation. For workers who changed jobs, the wage increase was 7.2%, down from the 7.7% increase recorded in June. While wage growth is still occurring, its cooling pace suggests that the labor market is aligning with the Federal Reserve’s efforts to control inflation—a critical goal in the current economic climate.

White-collar workers are particularly feeling the strain as the labor market slows. While job growth was almost entirely concentrated in the services sector, goods producers barely contributed, adding a mere 3,000 jobs. This has left many professional sectors, particularly those requiring specialized skills and higher education, in a tough spot. The bulk of the job gains came from trade, transportation, and utilities, which added 61,000 new jobs. Beyond this sector, job growth was mostly lackluster, painting a grim picture for those in higher-paying, white-collar professions.

The decline in certain sectors is another red flag. Professional and business services shed 37,000 jobs, while the information sector lost 18,000, and manufacturing cut 4,000 positions. These declines indicate that higher-paying jobs are becoming increasingly scarce, posing challenges for many workers who previously relied on these sectors. This shift could lead to a more competitive job market, with many overqualified candidates vying for the fewer available positions.

Wall Street is keenly observing these labor market trends, looking for signs that it is finally cooling enough for the Federal Reserve to consider cutting interest rates. A cooled labor market would ideally reduce inflationary pressures, allowing the Fed to pivot from its current stance. However, the current data suggests that while there are signs of cooling, the labor market has not reached a point where significant policy changes are imminent.

In summary, the labor market’s slowdown and the accompanying decline in wage growth suggest that the Federal Reserve’s efforts to combat inflation are starting to take hold. However, the uneven distribution of job growth and the decline in higher-paying jobs present challenges that need to be addressed. The coming months will be crucial in determining whether these trends continue and how they will impact both the economy and the workforce.