According to the January ADP® National Employment Report, prepared by ADP Research in collaboration with Stanford University’s Digital Economy Lab (Stanford Lab), the number of jobs in the private sector increased by 183,000 jobs in January, and the annual wage increased 4.7 percent year-on-year. The ADP National Employment Report is an independent measure and a high-frequency view of the labor market in the private sector based on actual and anonymous salary data for more than 25 million employees in the United States.
The Jobs and Wage Insights report uses aggregated and anonymous accurate payroll data from ADP to provide a representative picture of the private sector labor market. The report shows the overall change in private hiring in the current month, and weekly jobs data from the previous month. Since ADP base payroll databases cconstantly updated, the report provides a high-frequency and almost real-time measure of employment in the United States. This metric reflects the number of employees on ADP (Payroll Recruitment) customer payrolls to provide a richer understanding of the labor market. Starting January 2025,
ADP’s Pay Insights metric captures nearly 14.8 million observations of individual pay changes each month.
Up from nearly 10 million at launch. Nella Richardson, chief economist at ADP, said, “We had a strong start to 2025 but it hid a dualism in the labor market.” “Consumer-facing industries pushed employment, while job growth was weaker in business services and production.”
The total number of jobs added in December was revised from 122,000 to 176,000. The January 2025 report reflects the planned annual review of ADP’s National Employment Report.
The data series has been reweighted to conform to the data of the Quarterly Employment and Wage Census (QCEW) standard through March 2024. In addition, this amendment includes an improved classification model.
Market Reactions to U.S. Nonfarm Payrolls Change
Traders and economists expect the Nonfarm Payrolls report to show that the U.S. created 164,000 new net jobs, with average hourly earnings up 0.3% month-on-month (4.0% y/y) and the U3 unemployment rate stabilizing at 4.2%.
Last month’s jobs report exceeded expectations in terms of overall job growth and revision of previous estimates, but much of that strength can be attributed to recovery from previous weather-related disruptions. More importantly, the household survey was relatively weak, resulting in a low participation rate and a high unemployment rate (to 4.0).%).
For this month, the outlook is tepid, with economists expecting “only” 164,000 net new jobs and the unemployment rate to remain steady at 4.2%. Among the key areas to watch is the average hourly wage gauge, which has risen slightly in recent months, raising concerns about accelerating wage growth and potentially limiting the Fed’s scope to cut interest rates further if it continues to do so.
As the bottom left box below indicates, traders are skeptical that the Fed will offer a lot in terms of additional interest rate cuts this year, with only one 25 basis point cut expected in the first half of the year and only a 50/50 chance of a second cut in the second half of 2025. With few jobs and inflation reports left ahead of the Fed’s “decisive moment,” this week’s jobs report may not be as impactful as the market as other more impactful releases immediately.
The employment component of the ISM manufacturing PMI fell to 45.3 from 48.1 last month. The Institute for Supply Management’s service sector employment index stood at 51.4 compared to 51.5 last month. The ADP employment report showed 122,000 net new jobs, down 146,000 jobs last month.
Expectations for the current month and the impact of the change in US nonfarm payrolls on interest rates
Looking ahead, analysts are cautiously optimistic about the trajectory of the labor market. While the December report provided encouraging signs, challenges remain. The constant threat of inflation, especially in sectors such as energy and food, can affect consumer purchasing power and, consequently, job growth. In addition, geopolitical uncertainty, including tensions in Eastern Europe and potential disruptions in global supply chains, could pose risks to the labor market.
The outlook for upcoming NGPY change reports is mixed. Some analysts expect job growth to begin to slow as the economy moves closer to full employment. Others argue that the labor market still has room for growth, especially in sectors that are lagging behind in recovery. The Fed’s actions in the coming months will play a crucial role in shaping the job landscape. As the central bank navigates the delicate balance between supporting economic growth and controlling inflation, its decisions will have far-reaching implications for the labor market.
When weighing our internal data and models, key indicators point to a reading roughly as expected in this month’s NFP report, with key job growth likely to come somewhere in the 150-200k range, albeit with a large range of uncertainty given the current global backdrop.
Regardless, the monthly fluctuations in this report are very difficult to predict, so we don’t count too much on any forecasts (including our own). As always, other aspects of the release, notably the closely watched average hourly earnings figure of 0.4% m-o-m in the latest NM report.
As we will explain below, the US dollar rose to test its highest levels in more than two years, but the recent pause near those high levels prevented the pair from heading to the nonfarm payrolls report in an overbought state.
