As chief economist at ADP, and head of the ADP Research Institute, Nela Richardson is all about jobs. She leads the team that takes up all the private sector jobs data this global provider of payroll services gathers up each month and then turns into the ADP employment report that is released two days before the first Friday of the month when the BLS - Bureau of Labor Statistics - issue its monthly employment report.
The two reports are different in key ways. For one, the ADP report is based only on private sector jobs; the BLS report includes government jobs at the federal, state and local levels. In addition, the BLS jobs data are based on monthly surveys of people called at home each month and on surveys that businesses fill out and send to the BLS. ADP tracks millions of workers who work at firms that rely on it its services, and it is able to tally up things the BLS does not provide like job changes at small, medium and large businesses.
Bottom line, Nela’s view of the labor market, where it is now, where it is heading and importantly what it will mean for the Federal Reserve’s policy is comprehensive and unique.
So dive in and hear what she has to say about the weakness that has appeared in hiring by small businesses - that make up 73% of the firms included in the ADP report - and what is driving this. Why services sector jobs are growing. How tariffs are and are not affecting them even as goods-producing companies remain a big concern.
And as markets and the Trump team wait to see what Chair Powell and his team decide at their June meeting, Nela stresses that the still-solid labor market “is really the Fed’s biggest cheerleader” that will give them latitude to make whatever decision they choose.
Labor market solid but slowing 00:01:32.080
Big picture. The labor market is still solid, but hiring momentum is slowing. So those 2 things are true. At the same time there was a burst of hiring at the early part of the year at ADP. We saw it in manufacturing, which has struggled for the better part of 2 years. And so you're seeing that slowdown, the 3-month average is now with those revisions you mentioned, much lower than we saw this time last year. However, the economy is still producing jobs. Now, if you want to peek under the hood, there are some concerns, and I'm going to just name one right off the top here is that this hiring <as chronicled in this> government report today, looks very concentrated. It's really in 2 key sectors, leisure and hospitality and healthcare. Those are consumer facing sectors. We've also seen in the consumer space a lot of downbeat sentiment. So if consumers actually ever start walking, their talk…. then you would see those 2 sectors be very vulnerable to a swing in consumer spending. So I want to put that out there. The highly concentrated hiring market.
Labor market favors the Fed…but is not flawless 00:03:31.190
You know, I've been saying for the past couple of months here that the labor market is really the Fed's biggest cheerleader in the sense that the labor market has enabled whatever decision that the central bank wants to make. It's given them the latitude to do that. So yeah, there are pockets of weakness in this report that you could point to, you're seeing some unemployment rate lift off with vulnerable groups. I would note black women's unemployment rate ticked up to 6.2% in this report, even though the overall unemployment rate was at 4.2%. I'd also note that there's been struggles in certain sectors that we can dive into, especially if you look at the ADP data overall, though the labor market hasn't been flashing alarm bells in the sense that a big action would be taken. But there are some pockets of concern that have been bubbling up for a while.
Goods sector is still under pressure 00:05:09.650
The goods sector, the manufacturing sector, is about 10% of the overall employment, but it is a key indicator in terms of looking at the expansion or contraction of the US economy. And, if you look at the goods sector in totality, what we've seen, at least in the ADP side, is that construction jobs are also lower than what they have been over the last several months, and so the goods sector overall looks like it's <demonstrating> weakness. But this isn't new. This actually has been going on, at least for manufacturers for quite some time. They've been in a virtual recession in terms of their hiring pace for a while, and that matches up with other indicators like from the ISM manufacturing report, which continues to show contraction. What was unique this year was that in February and March we actually saw a burst of hiring, and that matched a burst of optimism on the part of manufacturing from that ISM survey. But it was short-lived and so the manufacturers have gone back to this contractionary trend and sluggish hiring. So it's still an area of concern about what will reignite that particular industry.
Services hiring is better but showing signs of hesitancy 00:06:20.700
Now, services have held up. But again, if you look at the government data today, it wasn't everywhere, and so I'm always concerned when hiring only is coming from a few places. But what we've captured here is stability has turned into hesitancy.
Nearly everything is at risk to trade policies 00:07:29.000
I think that there has been this fog of uncertainty that's hitting all sectors. And even if you look at healthcare or leisure and hospitality, they are still sourcing goods and making capital investments for restaurants, those capital, those sourcing of goods is food. And a lot of those food prices are coming, if not from the US, they're coming from Mexico. So it's a little bit less of a concern than a global trade issue. But you know, for hospitals, they're sourcing equipment and making capital investments, small and large, from around the world. So I don't think that services are immune to increases in duty costs, and that's an important thing to highlight. But it's not just about whether or not they're facing higher prices. It's about the uncertainty of policy in general.
Wage growth is still robust; labor market tight 00:10:11.400
<Wages> look solid, they look strong and robust, and I think that that's going to be to continue to play out at ADP. We pay one in 6 workers in the United States, and we're able to match about 14.8 million workers. Uniquely. So instead of looking at cohort effects or composition effects like whether restaurants are hiring or healthcare or construction, we can actually measure how one individual anonymized is doing compared to what they were doing a year ago the same month. So that's a very unique matched and very large sample size. And what we're seeing is that wages and the pace of wage growth is still very robust. It's come down a lot, but it's higher than before the pandemic. So for job stayers, people who were in the same job a year ago. Pay growth is 4 and a half <percent>. But for job switchers who are very sensitive to local economic conditions, local labor market conditions, real time market conditions that pay growth is 7%. So the typical worker gets a 7% pay bump from their old job to their new job just by switching, and that's very robust compared to what we've seen before the pandemic, and suggests that there is more labor tightness than most people are aware. But it's in pockets.
ADP & BLS two separate assessments of one economy 00:12:44.610 One thing that's important to lay out: First, is that this is an independent analysis. We are not trying to predict the BLS report, and, Second, there's no reason that the ADP report and the BLS report should match up every month. But you should see the same trend, and we are seeing the same trend which is a slowdown in hiring momentum. the main thing really to know. It's not a forecast. It's really an independent measure. And, secondly, we're not a survey.
ADP is Not a survey 00:13:14.190
The main thing really to know. It's not a forecast. It's really an independent measure. And, secondly, we're not a survey. We actually pay real workers. So those paychecks are our measure. It's not whether or not we are serving establishments which has a long history in government statistics. It's actually that we are as a company paying those workers on behalf of client firms. And so we're able to do this at scale and make those numbers representative. And so in that sense, our numbers at ADP are a representative sample.
Services slowing caused by goods sector weakness 00:13:39.790
And we are seeing that the goods sector slowed down quite a bit. In fact, if you look at our numbers, the good sector was the key driver of the slowdown that services did. Okay. They held up, and we saw on the service side that leisure and hospitality was solid at 38,000 jobs. Now, that's pretty good news. That means that the consumer, because there's been a lot of concern about the consumer with higher price levels and downbeat sentiment that the consumer still wants to do things. It still wants to go to the movies and to concerts and to baseball games that leisure and hospitality sector is important. The consumer is willing to spend. But there's other places where it didn't look so great. Retail and trade shed jobs, transportation and warehousing was weak healthcare in our survey was actually fairly weak. All the job gains we saw in that big sector of education and healthcare came from education.
A period of hesitancy doesn't make a recession 00:15:32.690
A period of hesitancy doesn't make a recession, but I am looking forward to seeing if these, you know. pauses in hiring are actually more frequent, as companies are trying to digest a lot of different information on both the domestic, local, and global economy and what it means for their business. We're seeing more instances, both anecdotally, and in our numbers, where firms are just waiting and seeing and not doing aggressive hiring right now.
The importance of small firms 00:16:46.210
I'm so glad you mentioned the size segment, because that was a key differentiator in the ADP report. We're the only ones that actually provide numbers on all these size segments. Small firms in particular shed jobs in May, and that to me was also a big concern. Because if you look at employment count for firms with less than 250,000 employees (that's the definition of small firms) they make up about 73% of all employment in the US. Small firms are the bulk of employment. So when we see a slowdown in small firms, that's a big noticeable punch to the gut of the labor market. I always say, ‘as go small firms, so goes the labor market.’ In fact, all of our job gains were found in midsize firms, even the larger firms shed jobs. Now you ask about tariffs and the ability to deal with uncertainty. Small firms have it harder. They don't have access to the capital markets. They don't have as many options for low cost financing. Many of them are dependent on bank loans with interest rates, and so that is a vulnerable sector, and when it comes to tariffs, if they're manufacturers or producers, they can't name their prices.
Fed decision mostly likely keys off inflation 00:21:14.880
I think that the decision that they make - I'm not going to make a call on the Fed action - I think that the decision they'll make will be based on inflation and not the labor market. Here's why I think that they will see these numbers from the BLS and perhaps from ADP and read them as solid. They're above 100,000, and I think they will take other labor market indicators that they're seeing like an uptick in job openings as a strong point, I think they will look at the relatively low, initial, jobless claims, which are a proxy for layoffs, as an indicator of a pretty sound labor market right now. Those jobless claims have been ticking up. but they are below 250,000. They would have to see something even a hundred-thousand more than that to get excited. So I think they'll take the totality of all these labor market indicators and say, Yeah. hiring is slowing.
Dr. Nela Richardson is chief economist and ESG officer for ADP Inc. She also leads the independent team at ADP Research, which provides reliable and timely data-driven discovery for use by the public, business leaders, and policymakers.
In 2021, Richardson led a revamp of the ADP National Employment Report in collaboration with Stanford Digital Economy Lab and launched Pay Insights, a report that tracks wage growth based on the payroll data of almost 10 million individual workers.
In addition to ongoing labor market analysis, Richardson provides insights on the dynamic shifts of the economy. She is a highly sought speaker and has delivered remarks at global thought leadership events such as the World Economic Forum Annual Conference in Davos, Switzerland, and the Federal Reserve’s Jackson Hole Economic Symposium.
Richardson is a contributor to Bloomberg and Marketplace from American Public Media. She frequently appears on CNBC, Fox Business, CNN, Yahoo! Finance, and in The Wall Street Journal, FORTUNE magazine, and The New York Times. Her weekly column, Main Street Macro, examines economic conditions and their effect on small and large businesses, workers, and households.
Prior to joining ADP, Richardson was a principal and investment strategist at Edward Jones, where she analyzed and interpreted economic trends and financial market conditions and recommended investment strategies. She previously served as chief economist at Redfin Corp., a national real estate brokerage and technology company, where she led a team of data scientists, economists, and writers who tracked trends in the housing market. At Bloomberg, L.P., she was a senior economist covering housing and financial markets.
Richardson has held research positions at the Commodity Futures Trading Commission, Harvard University’s Joint Center for Housing Studies, and Freddie Mac. She held an adjunct finance professorship at the Carey School of Business at John Hopkins University.
She was awarded a Ph.D. in economics from the University of Maryland, College Park, with concentrations in financial economics, international finance, and economic development. She earned her master’s degree in economics from the University of Pennsylvania and a bachelor’s degree from Indiana University in Bloomington with a triple major in mathematics, economics, and philosophy.
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