Employers pay more to retain key staff
Private-sector hiring cooled sharply in July, with employers adding just 44,000 jobs, according to ADP data. This marks the weakest monthly gain since January, reinforcing concerns that businesses are becoming more cautious about expanding their workforces.
Despite the slowdown in hiring, wage growth accelerated, particularly for workers switching jobs. Nela Richardson, ADP Chief Economist, said the latest data reflects an increasingly uneven labor market.
Rather than signaling a broad-based slowdown, economists say the data reflects a labor market with pockets of supply constraints. Richardson noted that the current environment reflects “a mix of supply and demand drivers,” meaning monthly hiring fluctuations may not necessarily indicate a lasting shift in labor market conditions.
Private payrolls increased by only 44,000 positions in July, down from 95,000 in June. The slowdown comes as employers face an uncertain economic backdrop shaped by geopolitical tensions, tariff concerns, and consumers who are becoming more cautious with spending.
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Construction remains one of the clearest examples of a labor market with a mix of trends. Although the sector added only 1,000 jobs in July, wages for construction workers changing employers reached a record high. Richardson attributed the surge to booming demand for workers supporting artificial intelligence-related data center construction, combined with a shortage of experienced labor.
Healthcare and education also continued to stand out, with education and health services adding 36,000 jobs during the month. Employers continue offering higher pay to compete for qualified workers amid persistent staffing shortages.
The Bank of America Institute reported that its payroll indicator accelerated to 2% year-over-year growth in July, up from 1.7% in June. The institute said hiring remained strongest among lower-income workers, with after-tax wage growth for these households climbing to 5.2% in July, surpassing wage gains for higher-income households for the first time since late 2024.
David Tinsley, Bank of America Institute Senior Economist, said the figures suggest the labor market is experiencing some evidence of tightening overall as businesses continue competing for workers despite slower hiring activity.
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Economists caution that stronger wage growth alone does not necessarily signal renewed inflationary pressure. Tinsley noted that whether higher wages ultimately feed into inflation depends largely on productivity gains, which can offset rising labor costs by allowing businesses to produce more efficiently.
Employers are facing challenges in finding and retaining skilled workers. As a result, they’re forced to pay more to attract and keep talent, which can have a ripple effect on the overall economy.
Richardson echoed that view, saying the recent acceleration in pay growth deserves attention but does not yet point to a wage-driven inflation cycle. The labor market continues to evolve, and employers will need to adapt their hiring and compensation strategies to remain competitive.
According to the Bureau of Labor Statistics.
