Latest Wage Data Shows Inflation Moving in the Wrong Direction
While November jobs data was stable, wages present a fly in the rate-cut ointment.
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We have the first of today’s economic data pieces, namely’ ADP’s ADP National Employment Report, and it showed a slower pace of job creation in November compared to October, but not one that dramatically missed market expectations.
Private sector employment increased by 146,000 jobs in November, down from the revised figure of 184,000 in October and a tad shy of the 150,000 market forecast. Declines in manufacturing were more than offset by strength in the service sector which, per ADP, added 140,000 jobs during November. That matches the findings of S&P Global’s Flash November PMI and the employment contraction contained in ISM’s November Manufacturing PMI report earlier this week.
We’ll get more insight into the pace of job creation in the service sector later this morning when S&P Global publishes its final November Service PMI data and ISM issues its November Non-Manufacturing PMI report. Expectations are that the service sector will reaffirm the economy’s strength but we will be as interested in what is found, particularly by ISM’s data, on inflation.
Recent September and October data have shown inflation to be sticky, and while we saw a fall in inflation pressure in the November Manufacturing PMI data, the renewed upward trend in ADP’s November Pay Insights is another data point for inflation moving in the wrong direction.
During the month, ADP found year-over-year pay gains for job stayers rose to 4.8%, up from 4.6% in October, marking the first increase in the last 25 months. For job changes, the year-over-year pay gain jumped to 7.2% compared to October’s 6.2% figure. Given the strength in service sector job creation in ADP’s November data, we are likely to see some influence of that in ISM’s Non-Manufacturing Price index reading for November. If that reading comes in ahead of the October figure of 58.1, it will be another indication of sticky inflation and argue for a Fed rate cut pause later this month.
We’ll break down the learnings in that data and share what it means for any comments we may hear from Fed Chair Powell and see in the latest Fed Beige Book this afternoon.
