After experiencing consecutive months of declining employment rates, the U.S. labor market welcomed long-awaited good news in July.
A report released by payroll data processing company ADP on Wednesday, August 2, indicated a significant increase in private sector employment across the United States, driven by strong job gains in the restaurant, leisure, and hospitality industries. The report revealed that 324,000 new jobs were added in the private sector in July, far exceeding the estimated 175,000 by Dow Jones.
Despite multiple rounds of interest rate hikes by the Federal Reserve to combat escalating inflation, the U.S. job market remains robust. According to ADP's employment report for July, the positive employment trend in North America was primarily attributed to the impressive performance of the hotel, restaurant, bar, and related sectors.
These industries collectively added 201,000 jobs in the past month, significantly surpassing the second-ranked natural resources and mining sector, which added 48,000 jobs. The employment growth in the restaurant and other leisure industries even exceeded the combined total of all other industries as per ADP's statistics.
Bruce Grindy, Chief Economist of the National Restaurant Association, stated in a statement, "Restaurant operators may find that the competitive hiring environment will moderate in the coming months. While the industry's employment growth remained in July, it was still well below the pace seen in the first few months of this year."
The ADP report also highlighted that wages grew by 6.2% compared to the previous year, which is significantly higher than the long-term growth rate but marks the lowest increase since November 2021.
However, the monthly employment report released by the U.S. Bureau of Labor Statistics (BLS) on Friday, August 4, provided a contrasting perspective. According to the BLS data, employment in the food services and drinking places sector increased by only 13,400 jobs last month, slightly higher than the numbers for June and May.
Nonfarm payrolls increased by 187,000 in July, slightly below the Dow Jones' expected 200,000. The unemployment rate was at 3.5%, slightly below the market's general anticipation of 3.6%. Average hourly earnings grew by 0.4% this month, with a year-over-year growth rate of 4.4%, both surpassing expectations.
Restaurant employment still lags by about 64,000 jobs, or 0.5%, compared to pre-pandemic levels.
The growth in July remains lower than the average level seen in the first quarter of this year and is significantly below the growth rates observed in 2021 and 2022. Between April and July, food services and drinking places added less than 11,000 jobs per month, a significant drop from the first quarter's average of 53,000 new jobs per month. According to the National Restaurant Association's data, the industry added about 97,500 jobs per month in 2021 and 2022.
Astute readers may have noticed the substantial discrepancy in data between the two reports, particularly in the restaurant industry.
However, both reports are acknowledged by industry experts. So, why is that the case?
The ADP National Employment Report is a monthly economic data report that tracks nonfarm private sector employment levels in the United States. It is published by Automatic Data Processing, Inc. (ADP), a company responsible for processing payroll data for approximately one-fifth of private sector employees in the U.S.
The ADP Employment Report is typically released two days before the U.S. Bureau of Labor Statistics (BLS) releases its monthly employment report (published on the first Friday of each month). Due to its earlier release, the ADP report often serves as a preview of more comprehensive government statistics.
The primary distinction between the ADP Employment Report and the BLS official report lies in their coverage. The ADP report covers only nonfarm, private employees, while the BLS survey conducted by a government agency also includes government employees. Additionally, while ADP releases a single set of numbers, the BLS report is updated and includes responses received from companies after the initial release. Both reports use very similar data collection methods and often produce closely aligned results.
Since 2017, economists have noted a significant divergence between ADP and BLS national employment data, with ADP estimates consistently higher than government data. This divergence may be due to subtle methodological and sampling differences between the two organizations. ADP's data is based on payroll records from its client companies, requiring adjustments to reflect national economic data.
In conclusion, both reports are officially recognized and hold authority within the industry. While there are slight variations in their data, the overall trends are similar, providing restaurant owners with different perspectives on the North American labor market.
Overall, the positive growth in July marked a strong conclusion for the first half of the year.