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Underlying strength in the U.S. labor market is keeping wages and services inflation elevated and it "may take a while" to see a slowdown, Nela Richardson, chief economist at ADP, a payroll processor, said Wednesday.
"Pay growth is still much stronger than it was before the pandemic and generally not consistent with a 2% inflation target," Richardson told reporters after ADP released its February U.S. employment report, showing private sector employers added 242,000 jobs last month. "Even though there's moderation, that moderation has been slow and modest and may take a while longer to meaningfully show up in lower services inflation."
Annual pay growth for job stayers dipped to 7.2% in February, the slowest pace of gains in 12 months. For job changers, growth slowed to 14.3% from 14.9%. However Richardson pointed out for industries like construction and education, pay growth has stayed flat at a high level. (See: MNI INTERVIEW: Fed Rate Hikes Yet To Hit Services Prices-ISM)
Strong pay data are consistent with other labor market indicators pointing to strength. Initial jobless claims have been below 200,000 for seven straight weeks and firms are reluctant to let go of workers. The Labor Department's unit labor costs data last week also saw a 6.3% increase from a year ago, compared to 1.2% before the pandemic.
"There's a pretty consistently robust and solid view of the labor market, despite higher interest rates from the Federal Reserve," Richardson said.
Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.