Report: Labor Market Strong Despite High Interest Rates

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Facts

  • According to the "ADP National Employment" report — jointly developed between private company ADP and the Stanford Digital Economy Lab and released on Thursday — US private employment increased by 235K jobs last month.
  • Economists had expected a gain of approximately 150K. The news, alongside unemployment claims for the last week of December dropping to 204K from 223K, caused the S&P to open 1.2% lower as well as the Nasdaq to decrease by 1%.
  • It's believed that investors fear strong job numbers could push the Federal Reserve to continue raising interest rates, which were raised seven times in 2022 totaling 4.25%.
  • The Bureau of Labor Statistics data on Wednesday also indicated that there were 10.458M job openings at the end of November, equating to 1.74 jobs for every unemployed person.
  • The report also showed that annual pay increased 7.3% year-over-year. Nela Richardson, chief economist at ADP stated that the labor market hiring varied "sharply by industry and size" with large establishments seeing a drop in unemployment compared to small and medium companies.

Sources: Reuters, Investment Week, CNBC, Finance, and HRO Today.

Narratives

  • Narrative A, as provided by Reuters. Markets already want to know when the Federal Reserve will start making cuts. While many have warned US inflation hasn't turned the corner yet, the markets are demanding change. With the ADP report potentially causing the Fed to raise interest rates even further, it's perhaps too early to be having such a discussion.
  • Narrative B, as provided by The Guardian. The Fed must stop raising interest rates. Domestic inflation is driven by profits rather than wages, which interest rates don't directly affect. Impacting workers rather than businesses, the government should use other means to tame inflation such as windfall profit taxes and antitrust enforcement.
  • Cynical narrative, as provided by Axios. Discussion of a healthy labor market and raising interest rates often neglects the deadly fingerprints of COVID. Fed Chair Jerome Powell himself correlated a tight job market to the pandemic deaths of nearly 500K American laborers. Factor in perhaps 4M long COVID sufferers, and the picture of just why the US job market is so "tight" has more context.