U.S. private payroll growth slows as labor shortages persist

WASHINGTON, Aug.4 (Reuters) – Private sector payrolls in the United States grew much less than expected in July as shortages of workers and raw materials limited hiring in manufacturing and construction .

The smallest number of five-month job gains shown in ADP’s national employment report on Wednesday suggested a downside risk to economists’ expectations for another month of solid wage bill growth when the government will release its more comprehensive and closely watched employment report for July on Friday.

“This suggests that labor shortages are still acute,” said Paul Ashworth, chief US economist at Capital Economics in Toronto. “The ADP is not always a good predictor of official nonfarm payroll employment figures but, for what it is worth, it suggests a clear downside risk to the consensus forecast.”

Private payrolls increased by 330,000 jobs last month, less than half of the 695,000 that had been anticipated by a Reuters survey of economists. The June data has been revised down to show 680,000 jobs added instead of the 692,000 originally reported. The ADP report is jointly developed with Moody’s Analytics

Employers are struggling to find workers willing to fill a record 9.2 million vacancies even as 9.5 million people are officially unemployed, a disconnect caused by the pandemic. The lack of affordable child care and fears of contracting the coronavirus have been blamed for keeping workers, mostly women, at home. There have also been retirements linked to the pandemic as well as career changes.

The scarcity of raw materials, especially in the automotive sector, slows down production.

Although nearly half of the population has been fully vaccinated against COVID-19, increasing the demand for workers in the labor-intensive service sector, new cases are increasing across the country, driven by the Delta variant of the coronavirus.

The slowdown in hiring last month affected all sizes of businesses and industries. The leisure and hospitality payroll increased by 139,000 jobs, below the 330,000 average in the second quarter. Economists said this suggested that early termination of benefits in at least 20 states led by Republican governors did not force low wages to return to work.

Republicans and business groups blamed improved unemployment benefits, including a weekly $ 300 check from the federal government, for the labor shortage.

Factories added just 8,000 jobs in July after an average of 35,000 in the last quarter. A global semiconductor shortage is hampering production in the automotive sector. Hiring on construction sites has stagnated, with the payroll only increasing by 1,000 jobs. Expensive lumber and scarce building materials hamper residential construction.

US stocks opened lower after a record close for the S&P 500 Index (.SPX). The dollar was trading lower against a basket of currencies. US Treasury prices were higher.

BAD RECORD

The ADP report has a poor track record of predicting the number of private wages in the department’s Bureau of Labor Statistics (BLS) employment report due to methodological differences.

According to a Reuters survey of economists, private payrolls probably increased by 750,000 jobs in July after rising 662,000 in June. With government employment expected to have increased by around 130,000, thanks to education-related hiring, this would lead to an increase in the overall payroll of 880,000 jobs in July. The economy created 850,000 jobs in June.

The July non-farm payroll estimate is highly uncertain, with mixed labor market indicators. Data from Homebase, a payroll planning and tracking company, showed that its employees’ work index rose moderately in July compared to June.

The state’s initial claims for unemployment benefits changed little between mid-June and mid-July, when the government investigated for the July Jobs Report. But the number of people who continue to receive benefits after a first week of aid has declined significantly during this period.

In addition, a survey by the Institute for Supply Management on Monday showed that its measurement of manufacturing employment rebounded in July. The Conference Board’s labor market differential, derived from data on consumer opinions about whether jobs are plentiful or hard to come by, hit its highest level since 2000 in July.

Education payrolls typically fall by at least $ 1 million in July, before adjusting to seasonal fluctuations, as schools and universities close for the summer. This year, however, many students are catching up with school after the disruption caused by the pandemic. Economists anticipate a slight drop in employment in education, which would increase the seasonally adjusted wage bill in the sector.

“We also need to keep in mind that ADP data on the private sector should not capture the strength of public education-related employment that we think is evident in the BLS data,” said Daniel Silver, economist at JPMorgan in New York.

“We stand by our forecast for the BLS report of 900,000 jobs added in July, including 550,000 from the private sector.”

Reporting by Lucia Mutikani; Editing by Andrea Ricci

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