Employers Are Hiring Less, But Key Industries Are Paying More to Keep Talent Amid Shortages

Private-sector hiring cooled sharply in July, but employers are still paying more to attract and retain workers, highlighting a labor market that remains tighter than headline job numbers suggest.

Private employers added just 44,000 jobs in July, according to ADP data released on Wednesday, marking the weakest monthly gain since January and reinforcing concerns that businesses are becoming more cautious about expanding their workforces. Yet at the same time, wage growth accelerated, particularly for workers switching jobs.

Rather than signaling a broad-based slowdown, economists say the latest data reflects an increasingly uneven labor market in which some sectors are scaling back hiring because of economic uncertainty, while others continue competing aggressively for a limited pool of skilled workers.

"Pay is reflecting a labor market that is not getting looser, but maybe tightening a little bit. What you're seeing is pockets of supply constraints," ADP Chief Economist Nela Richardson told reporters Wednesday.

Richardson said 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.

According to ADP, private payrolls increased by only 44,000 positions in July, down from 95,000 in June. The slowdown comes as employers navigate an uncertain economic backdrop shaped by geopolitical tensions, tariff concerns, and consumers who are becoming more cautious with spending.

Despite weaker hiring, compensation continues to move higher. Workers who changed jobs saw annual pay growth accelerate to 7% in July, the fastest increase since August 2025. Meanwhile, employees who remained with the same employer experienced steady annual wage growth of 4.4%.

Construction remains one of the clearest examples of the labor market's unusual dynamics.
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. Education and health services added 36,000 jobs during the month, leading all major industries in hiring. While wage gains in the sector were less dramatic than in construction, employers continue offering elevated pay to compete for qualified workers amid persistent staffing shortages.

The Bank of America Institute reported Wednesday that its payroll indicator, based on customer deposit account data, 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.

Another notable trend emerged in household income growth. After-tax wage growth for lower-income households climbed to 5.2% in July, surpassing wage gains for higher-income households for the first time since late 2024.

"This is a convergence, but it's an upward convergence," Bank of America Institute Senior Economist David Tinsley told reporters. "It's not that everything is leveling down. It seems to be more of a leveling up in the data right now."

Tinsley said the figures suggest the labor market is experiencing "some evidence of tightening overall" as businesses continue competing for workers despite slower hiring activity.

Economists caution, however, 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.

Richardson echoed that view, saying the recent acceleration in pay growth deserves attention but does not yet point to a wage-driven inflation cycle. "I don't think that's enough to tip into an inflationary cycle," she said.