Private hiring in the United States continued to beat analyst expectations in February, according to payroll firm ADP, in a further indication the Federal Reserve will continue its aggressive rate hike increases
Washington (AFP) - US employers stepped up their pace of hiring in February, payroll firm ADP said Wednesday, while the central bank warned that inflationary pressures remained widespread in early 2023.
The figures are the latest sign that more effort may be needed to cool the world’s biggest economy, following a series of recent indicators showing that hiring remained strong, consumer spending resilient and inflation persistent.
These came despite the Federal Reserve’s efforts to tame price increases, raising interest rates eight times since early last year to ease demand.
Private sector employment surged more than expected by 242,000 jobs in February, around double the revised 119,000 figure in January, while wage growth continued, the latest ADP report said.
“We’re seeing robust hiring, which is good for the economy and workers, but pay growth is still quite elevated,” added Nela Richardson, chief economist at ADP, in a statement.
Wage growth in February slowed to 7.2 percent compared with a year ago, the survey showed, while the figure for workers who changed jobs also eased to 14.3 percent.
“The modest slowdown in pay increases, on its own, is unlikely to drive down inflation rapidly in the near-term,” Richardson cautioned.
- Recession risk -
The Fed has been walking a fine line to ease demand without tipping the economy into a recession.
But “inflationary pressures remained widespread” in recent times, even though price increases moderated in many districts across the country, the central bank said in its “beige book” survey of economic conditions.
The report, also released on Wednesday, added that “labor market conditions remained solid.”
Despite hiring freezes by some firms and reports of layoffs, employment continued to increase at a modest to moderate pace in most areas, the Fed said.
Fed Chair Jerome Powell warned on Tuesday that policymakers are prepared to step up the pace of rate hikes – and lift rates higher than previously anticipated – if needed to cool inflation and the robust jobs market.
Although a separate Labor Department report for January showed that job openings dropped, Matthew Martin of Oxford Economics said “the decline is far too modest to convince that labor market conditions are cooling enough to bring down inflation.”
Meanwhile, the ratio of unemployed per job opening, a measure that Fed policymakers pay attention to, slipped slightly but remains well above a level associated with a labor market that is neither tight nor has slack, Martin added.
“Workers continue to feel confident in finding new employment, while employers are reluctant to let go of workers they struggled to find initially,” he said.
- Wage growth ‘elevated’ -
The ADP report said Wednesday that “job gains are solid and wage growth remains elevated.”
The majority of job gains last month came about in the service-providing industry, in particular leisure and hospitality, as well as in financial activities.
ADP added that small establishments are “a particular area of weakness,” given that this segment has shed jobs every month since August 2022.
Analysts, however, caution against extrapolating too much given that the data can diverge from official numbers.
For now, the figures appear stronger than expectations for the private sector portion of payrolls in Friday’s government data release, said Rubeela Farooqi, chief US economist at High Frequency Economics.
“We expect payrolls to remain positive for now,” she added. “But the pace should slow as the Fed pushes rates further into restrictive territory.”
Policymakers have been keeping an eye on wage gains as companies competed to find and retain workers, concerned that this could lead to rising costs for services and make price increases more stubborn.