Wage growth slows as labor market tightens

The latest data from ADP show that annual wage increases for American workers have significantly declined from the highs reached during the post-pandemic reopening. In June, wages for job stayers rose 4.9% from the previous year, the slowest growth since August 2021. Meanwhile, wages for workers who changed jobs increased 7.7% year-over-year, down from the 16.4% peak in June 2022. ADP chief economist Nela Richardson said, “We are in a different regime now compared to the past, where job-stayer growth was either flat or even rising. The question now is just how low it’s going to get.” Richardson noted that the still-elevated pay gains for job switchers indicate some tightness in the labor market despite other signs of slowing. Recent labor market data showed 8.14 million job openings at the end of May, an increase from 7.92 million in April.

Wage growth hitting two-year low

The ADP report revealed that 150,000 jobs were added to the private sector in June, a decrease from the 157,000 added in May. Richardson emphasized that maintaining a range of about 120,000 to 150,000 monthly job additions balances the labor market. Data showed nearly 1.86 million continuing unemployment claims were filed in the week ending June 29, up from 1.83 million the week prior. Oxford Economics lead US economist Nancy Vanden Houten noted that while layoffs remain low for now, the rise in claims suggests that more workers are applying for benefits due to difficulty in finding jobs as hiring slows. The next significant labor market update will come on Friday with the closely watched nonfarm payroll report from the Bureau of Labor Statistics. This report is expected to show that 190,000 nonfarm payroll jobs were added to the US economy in June, with unemployment holding steady at 4%.