Nela Richardson, ADP chief economist and a Bloomberg contributor, reacts to the latest jobless claims numbers, saying the U.S. labor market is very concentrated and only hiring a very specific type of person.

Washington

ADP chief economist Nela Richardson described the US labor market as stable but highly concentrated, with most new jobs emerging in health care and education. Despite a 4.1% unemployment rate, continuing jobless claims are higher than last year, and labor force participation remains below pre-pandemic levels.

Richardson noted that wage growth has accelerated since the pandemic, with younger workers making up a larger share of the workforce and a decline in workers aged 45 and older. She emphasized that while certain sectors face labor shortages, overall pay growth remains elevated, contributing to persistent inflationary pressures.

ADP: U.S. labor market is in stasis

So, is it getting harder to get a job in America? And how much data supports that right now? Yes. And you can see that. Continuing claims are running about 5% higher than they were last year. And it really begs a certain kind of question. If you look at labour force participation rates, we're a percentage... a full percentage point lower now than we were before the pandemic. And, you know, we have this unemployment rate that went back from 4.2% in May to 4.1% in June. So, if fewer people are either working or looking for work, why is it harder to get a job? And I think the answer is, is the same when you look at the markets. We have a very concentrated labour market, which is only hiring a very specific type of person. I'm looking right now, and I'm glad that John brought up continuing claims, because continuing claims came in at the highest level, and it's been dropping to the highest level since November of 2021, and it raises a question of whether we're seeing breaking points, even if the all-in number will not break. In other words, are there things that people will be able to point to that really show true profound weakness, but on an overall basis, it isn't going to be disinflationary, it isn't going to create the backdrop that the Fed might need in order to cut rates? That's right. We're in a labour market that's... I've used the word here before, in stasis. It's not increasing much. It's pretty solid. 4.1% unemployment rate. You would never argue with that number in any time period, and yet you see how concentrated. So, most of the jobs that the BLS reported last month were in health care, about 80% of those jobs. You add education, that was about 90% of the private sector jobs that were reported. And so, where are the cracks? Well, the cracks are in white-collar jobs, in professional services, B2B businesses, financial services. There are places that are not hiring. And right now, we don't know if it's a demand or a supply issue, because there's also a sense that labour supply is not being filtered to where the areas that are needed most, like specialty trades, for example, in construction or nursing and health care. There are parts of the economy that desperately need workers, and they're not being matched right now. But here's the issue. A lot of people have been saying that because immigrants haven't been coming in, or because the wave of illegal immigration has been staved off, and there have been deportations, that there is going to be wage inflation in certain industries that are going to have a harder time filling those roles. Is there any evidence that that's the case? Well, across the board, there's wage inflation. The complexion of the labour market, and I think this is a little understood point, has changed dramatically since the pandemic. We're ushered in a completely different pay structure than the one that existed prior to March of 2020. The composition of the labour market has shifted. We have more young workers in the labour market than we did before. The percentage of workers 45 and older have actually decreased by 2% over the last five years. And the nexus of all this churn from the Great Resignation and that supercharged hiring after the pandemic is wage growth that is higher and more persistently higher at stable levels than before the pandemic. So, just to put a number to it, before the pandemic, you know, this labour market was characterised by very slow pay growth. We clocked that pay growth at about 0.4% in the first four months prior to the pandemic. Now we clock it at 2.5%. So, this is an elevated pay growth level that is restructuring the labour market, and that has all kinds of implications for the workforce. But is it across all sectors? To Lisa's point, the Treasury Secretary continuously talks about when you close the border, American wages go up. Is that true in those sectors that historically have been filled by immigrants? Well, that's the thing about economics. You can't look at one sector and call it done. You have to look at the fill-through rate through the entire economy. Does that lower demand? Does that lower consumption patterns? Does that change the composition of the workforce? Does that force firms to hire or raise or lower prices? So, it's hard to really come out and say there is one clear answer to that. You kind of have to see how the equilibrium shakes out. But overall, what we're tracking is a higher-for-longer pay growth that's much higher than it was before the pandemic, and it feeds into the idea that the labour market, the source of inflation, can put a floor on that inflation and keep it from going as low as it was prior to the pandemic.

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