Private sector employment in February was slightly higher than expected, but most of the job creation came from just two sectors, ADP reported on Wednesday.
Companies added a seasonally adjusted 63,000 employees during the month, an improvement from the downwardly revised 11,000 in January and above the Dow Jones consensus estimate of 48,000, according to the payroll company’s latest update.
Although the total was higher than expected, breadth remains an issue for the labor market.
The education and health services industry, a major driver of job creation, added 58,000 jobs in the month, well ahead of all sectors. Construction then contributed 19,000 jobs, with the two industries offsetting the stagnant growth in most other sectors.
There were 30,000 fewer jobs in professional and business services, 5,000 fewer jobs in manufacturing, and 1,000 fewer jobs in trade, transportation and public works. Other than the information services sector, which added 11,000 jobs, there was little movement in other sectors. Despite President Donald Trump’s efforts to use tariffs to restore jobs to the industry, manufacturing continued to decline.
On the wage front, wages for those who remained in their jobs increased by 4.5%, unchanged from January. However, the wage increase rate for those who changed jobs was 6.3%, down 0.3 points from the previous month. These results reduce incentives to change jobs to the lowest level since ADP began tracking the indicator.
“Job growth and wage growth remain strong, especially for those leaving the workforce,” said Nella Richardson, chief economist at ADP. “However, because hiring is concentrated in only a few areas, our data does not show widespread salary benefits from changing jobs.”
In a sharp turn from recent months, job creation was concentrated in companies with fewer than 50 employees. This group reported an increase of 60,000 employees, while large companies with 500 or more employees reported an increase of 10,000 employees and medium-sized companies reported a decrease of 7,000 employees.
Job growth has slowed further over the past year as the Trump administration cracked down on illegal immigration and the pace of hiring slowed in the wake of the coronavirus pandemic. Companies are reluctant to add staff, but the number of layoffs remains at a low level.
The report includes questions about the state of the labor market, as well as concerns about persistently high inflation, the latter exacerbated by the fighting in Iran and the Middle East.
Recent comments from Federal Reserve officials indicate a slight increase in confidence that the employment situation is stabilizing. At the same time, there are growing concerns that soaring oil prices will push up inflation. Traders now say the next Fed rate cut won’t occur until at least July, reducing the chances of a second rate cut this year, according to CME Group’s FedWatch tracker.
ADP’s announcement comes ahead of the Bureau of Labor Statistics’ nonfarm payrolls report on Friday. Wall Street expects the report to add 50,000 jobs in February, but unlike the ADP, it also includes government jobs. Economists expect the unemployment rate to remain stable at 4.3%.
