ADP finds private sector added 234,000 jobs in January

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The private sector added a robust 234,000 jobs in January as wages increased, according to payroll giant ADP, on the heels of the passage of the Tax Cuts and Jobs Act and minimum wage hikes in some states and cities.

Small businesses added 58,000 jobs in January, including 24,000 in businesses with between one and 19 employees, and around 33,000 in companies with between 20 and 49 employees.

Midsized businesses with between 50 and 499 employees gained 91,000 jobs. Large businesses added 85,000 jobs, including 20,000 at companies with between 500 and 999 employees, and approximately 66,000 in corporations with 1,000 employees or more.

The goods-producing sector added 22,000 jobs, while the servicing-providing sector gained 212,000, including 46,000 in professional and business services such as accounting, tax preparation and other services. Franchise employment increased by 19,700.

“We’ve kicked off the year with another month of unyielding job gains,” said Ahu Yildirmaz, vice president and co-head of the ADP Research Institute, in a statement. “Service providers were firing on all cylinders, posting their strongest gain in more than a year. We also saw robust hiring from midsize and large companies, while job growth in smaller firms slowed slightly.”

The job gains continue a trend that has been growing since the end of the Great Recession.

“Boom, a really strong monthly job number, and it continues a string of very strong job numbers we’ve been getting,” said Mark Zandi, chief economist of Moody’s Analytics, which compiles the monthly national employment report with ADP, during a conference call with reporters Wednesday. “Over 200K, that’s consistent with a rip-roaring jobs market, particularly at this point in the business expansion. We’re now closing in on a nine-year-old economic expansion, the second longest in economic history. At this point in the cycle, it’s very impressive to be generating this many jobs, well over 2 million on a per annum basis.”

Zandi noted that the job gains were broad based across industries, with the retail sector helped by robust Christmas sales in December. Even weaker parts of the economy in recent years appear to have recovered, including jobs in the energy industry and in manufacturing. The labor market is getting tight across the country, even in far-flung areas such as Burlington, Vermont and Columbia, Missouri. That is helping push up wage growth.

“Hourly wage growth is up close to 5 percent for people who are holding onto their jobs and up 15 percent for people switching jobs,” said Zandi. “It has accelerated quite substantively. If you go back a year ago, hourly wage growth was closer to 4.”

ADP is seeing the highest wage growth in the West and the South, while the softest is in the Northeast.

“In professional services, wage growth is soaring, surging, booming,” said Zandi. “That’s everything from lawyers and accountants to computer programmers, really strong wage growth there. The strongest wage growth is among really big companies, over 1,000 employees. The fastest rate of acceleration in wage growth is among the smallest companies with less than 50 [employees]. The tight labor market is probably creating some real problems for smaller companies, who are struggling to hold onto their workers.”

The passage of the Tax Cuts and Jobs Act late last month may be having some early impact on the job numbers in January.

“It’s hard to connect the dots between the tax cuts and the labor market,” Zandi said, in answer to a question from Accounting Today. “It’s got to have some effect. You’re giving a very large tax cut to businesses, and they’re trying to figure out what to do with the cash. There are lots of uses for that: dividends, share repurchases, investment, hiring, and repaying debt. There’s a long list of things they can do with it, but it’s got to have some impact. The thing that makes it difficult to discern precisely how much is that it’s hitting at a time when the labor market would have been strong and would have been tight even without the tax cuts. We also got huge minimum wage increases in many parts of the country on January 1, so that’s putting a lot of pressure on companies to raise their wages regardless.”

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