Employers are hiring less but paying more
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Private employment data suggests that the labor market might be tighter than the headline hiring numbers alone suggest, with worker pay accelerating alongside lackluster jobs growth.
Why it matters: Employers are pulling back on hiring as they navigate an uncertain economic outlook, but supply constraints continue to limit the pool of available workers in some industries.
- That's helping speed up pay growth — a boon for workers in industries like construction and health care, where employers are still competing for scarce labor.
- But the labor market is becoming increasingly uneven: While employers in some sectors are paying up to attract workers, others are more cautious about hiring as they contend with geopolitical uncertainty, tariffs and a more reluctant consumer.
What they're saying: "Pay is reflecting a labor market that is not getting looser, but maybe tightening a little bit. What you're seeing is pockets of supply constraints," ADP chief economist Nela Richardson told reporters Wednesday morning.
- "There is a mix of supply and demand drivers," she added. That means "a strong month or a weak month may just be a short-term change in a hiring pattern, rather than a longer-term signal" about the labor market's health.
By the numbers: Private employers added just 44,000 jobs in July, down from 95,000 in June and the weakest monthly gain since January, according to ADP.
- But annual pay growth for workers who changed jobs accelerated to 7%, the fastest pace since August 2025, while pay for workers who stayed put held steady at 4.4%.
- Construction added just 1,000 jobs in July, but pay for construction workers changing jobs is at a record high, reflecting strong demand from AI-related data center construction and a limited supply of experienced workers, Richardson said.
- Education and health services led all industries with 36,000 new jobs last month. Even though pay growth there is not as eye-popping as it is in construction, it remains elevated as employers continue to compete for a limited pool of workers, Richardson noted.
Between the lines: Other private-sector data shows that the labor market remains more resilient than the headline hiring figures alone suggest.
- The Bank of America Institute on Wednesday morning said its payroll gauge, based on customer deposit account data, accelerated to 2% year-over-year in July from 1.7% in June, with hiring strongest among lower-income workers.
The intrigue: The bank also said that after-tax wage growth for lower-income households accelerated to 5.2% last month, surpassing pay growth of higher-income households for the first time since late 2024.
- "This is a convergence, but it's an upward convergence," Bank of America Institute senior economist David Tinsley told reporters. "It's not that everything is leveling down — it seems to be more of a leveling up in the data right now."
- Tinsley said that the data points to "some evidence of tightening overall" in the labor market, as labor supply remains constrained and employers continue to compete for workers.
The bottom line: Some employers are reluctant to hire, but persistent worker shortages are keeping wage pressures alive in key industries.
- Tinsley said that firmer wage growth does not necessarily mean that the labor force is a source of inflationary pressure, noting that whether higher pay translates into inflation depends in part on productivity gains.
- ADP's Richardson said that the pay growth pickup is worth watching, but "I don't think that's enough to tip into an inflationary cycle."
