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Private payrolls in July rose by 330,000, short of estimates: ADP

In this article:
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ADP’s chief economist, Nela Richardson, joins Brian Sozzi and Myles Udland to discuss the data processing company’s latest report, including a breakdown by sector and her outlook.

Video Transcript

- I expected an increase of 690,000. Now all eyes shift to the farm payrolls report due out this Friday. Let's dive into all things jobs now with ADP chief economist Nela Richardson.

Nela, always good to see you here. Disappointing report on the headline, is this a sign that the Delta variant is having a greater impact on the economy than a lot of folks think?

NELA RICHARDSON: You know, the Delta variant is just one part of the uncertainties that are currently characterizing the labor market. There are other bottlenecks that were there before the Delta variant really became part of the national attention, including child care and the lack of childcare over the summer.

Bottleneck when it comes to the timing and matching of hiring. A shift to more long term workers making up more and more of the unemployment rolls. And I would have to say this hiring mismatch with firms all wanting to hire the summer while consumers and workers may have benefit-- have benefited from transfer payments or generous unemployment payment that keep them off payroll until the fall.

So all of these things are kind of coming together to have-- to show up in a very uneven, but still progressive labor market recovery.

- In today's report, I'm struck by what we see in construction manufacturing. Just a combined 9,000 payrolls added in July there, and given what we've seen in some manufacturing data, where employment improved last month. What seems to be holding back the appetite at least for hiring in those sectors?

NELA RICHARDSON: I think the appetite is there. I think the mail is missing. So right now yield workers has had have been in short supply. But this isn't a pandemic phenomenon.

And when it comes to construction, those in specialized trade have been missing in action for the past 10 years. It's one of the reasons why housing has been in short supply. And manufacturing, you're still seeing that missing cells that dominate in terms of hiring.

So this isn't new. It's just been amplified by the pandemic. We think that manufacturing and good sector in general is holding up pretty well given the labor shortages and anecdotal evidence around that, and also the supply chain bottlenecks that are ongoing because of the pandemic. So again, that unevenness continues but progress is being made.

- Nela, is also the problem here that employers perhaps are not raising wages fast enough to get workers back into the market. We had an announcement today from CBS raising their wages to $15 an hour by July 20, 2022 on the paper. That sounds good. But should it be $20 an hour to work in a CBS?

NELA RICHARDSON: Right. So there is a limit to how quickly wages can adjust to meet current demand and supply dynamic. It's hard for companies, especially small businesses to raise wages to attract new workers because that also means they have to raise wages to retain existing workers.

And if you're in a slim margin industry, and you're still dealing with the effects of the pandemic on your revenues, and cash flow, that could be a very challenging bit. But we're also seeing at the same time that the prevailing wage may not attract the same quality of worker that was before the pandemic.

And if you need any evidence, you can look at the overall number of people who are leaving their jobs to look for new ones. That's actually higher than it was before the pandemic. So there is a reassessment of work going on at the worker level.

Wages help kind of narrow down those options pretty quickly. And so firms that are competitive now-- right now are the ones who can adjust wages quickly. But over the long term, that skills mat, that's most important in retaining a high quality productive work forxe.

- And Nela, I'm also struck by the seasonality that we can see in this report. And you guys have a chart that goes back over the last 12 months. And we saw a surge from July and to September 2020 back down surge from March into May, and now back down.

And I'm curious how you're thinking about the labor market as we head into the school year. That's-- that's been a big potential catalyst. Is that something that's on your radar is maybe helping to increase the rate of hiring or are we likely to see another false one?

NELA RICHARDSON: Seasonality is also conflated with the path of the pandemic. So a lot of the ebb and flow of the labor market can be attributed to the rise and decline of the case count. And so as we head into the fall, we're also heading into a fall that has-- that looked increasingly uncertain from a pandemic perspective right when we thought that the case was being put to bed and definitively.

So-- so even as we expect higher vaccinations to improve health conditions going forward, there's still some uncertainty. That is matched up again now with the fall with the idea that schools would be back in session, that parents would be freer to look for work if the child care was in place, and elder care was in place.

But we can't also miss out of the structural dynamics. We're seeing a record number of business applications, for example. We're seeing new retirees and early retirees ship the job market.

And then a lot of switching jobs, which we've already pointed to. So all of that churn is going to impact the fall labor market as much as it is the summer labor market.

- Nela Richardson, ADP chief economist. Always good to see you. Have a great rest of the week.

Thanks for having me. Good to see you.