Private sector employment increased by 122,000 jobs in December 2024, according to the latest ADP National Employment Report. This marks a slowdown from prior months, reflecting a more measured pace of hiring as the labor market adjusts to economic uncertainties. Annual pay for private sector employees rose by 4.6% year-over-year, the slowest increase since July 2021, signaling a cooling in wage pressures.
Good-Producing vs. Service-Providing Sectors
The split between goods-producing and service-providing sectors highlights distinct trends. Goods-producing industries added 10,000 jobs, with a strong performance in construction (+27,000) offsetting losses in natural resources/mining (-6,000) and manufacturing (-11,000). This marks the third consecutive month of declines in manufacturing, reflecting challenges in industrial production and global trade.
Service-providing sectors contributed the bulk of the job gains, adding 112,000 positions in December. Education and health services led the way with an impressive 57,000 jobs, showcasing robust demand in healthcare. Leisure and hospitality also showed strength, adding 22,000 jobs, as consumer spending in this category remained resilient. Other notable contributors included financial activities (+12,000) and other services (+13,000). However, professional and business services shed 5,000 jobs, signaling potential caution in high-skill sectors.
Job Growth by Establishment Size
Job growth skewed heavily toward large establishments, which added 97,000 positions in December. Medium-sized firms contributed 9,000 jobs, while small establishments saw only a modest gain of 5,000, with those employing fewer than 20 people experiencing a small decline of 1,000 jobs. This trend underscores the relative resilience of large employers amid a decelerating economy, as they continue to absorb more labor capacity compared to their smaller counterparts.
Pay Insights: Slowing Wage Growth
Pay gains moderated across the board in December. Year-over-year pay growth for job stayers slowed to 4.6%, the smallest increase in over three years. Job changers saw a 7.1% increase in wages, down slightly from November, reflecting a softening in the premium associated with switching jobs.
In the goods-producing sector, median annual pay changes for job stayers varied: construction led with a 5.1% gain, followed by manufacturing at 4.5%, and natural resources/mining at 3.8%. Service-providing sectors also saw broad-based pay increases, with financial activities (+4.9%) and education/health services (+4.9%) posting notable gains. Leisure and hospitality (+4.6%) and trade/transportation/utilities (+4.4%) showed slower wage growth, reflecting stabilization in sectors that previously experienced significant volatility.
Impact on Policy and Markets
The weaker-than-expected job growth, coupled with slowing pay increases, may help ease some pressure on interest rates. With the Federal Reserve closely monitoring labor market dynamics, the ADP report adds weight to arguments for lower rates. Fed Governor Christopher Waller’s dovish comments this morning, acknowledging signs of labor market cooling, align with this narrative. As a result, the 10-year Treasury yield, a key benchmark for rate expectations, is likely to remain in focus.
Revisions and Outlook
While the report did not include significant revisions to the prior month, the cooling in job creation and wage growth signals a shift in labor market momentum heading into 2025. Sectors like education and healthcare continue to drive employment gains, but persistent declines in manufacturing highlight challenges in the goods-producing segment. Additionally, smaller businesses face mounting pressures, as evidenced by their muted hiring activity.
In summary, December's ADP data reflects a labor market transitioning to a more sustainable growth pace. Slower job creation and wage increases could provide the Federal Reserve with breathing room to reassess its rate trajectory, offering relief to markets wary of higher borrowing costs. For now, employers and policymakers alike will remain focused on balancing economic growth with inflationary pressures.