Private hiring rises faster than expected in February

According to the ADP National Employment ReportADP National Employment Report, hiring by U.S. companies increased more than expected in February, pointing to a labor market that remains tight even in the face of higher interest rates.

Companies added 242,000 jobs last month, beating the 200,000 gain that economists surveyed by Refinitiv predicted. It is a major increase from the upwardly revised gain of 119,000 recorded in January.

The Federal Reserve has waged the most aggressive fight since the 1980s to crush inflation and slow the labor market with a series of rapid interest rate increases. They have made it clear that they anticipate unemployment to go up as a result of higher borrowing costs, which could cause consumers and businesses to pull back on spending.

According to Mike Loewengart, head of model portfolio construction at Morgan Stanley Global Investment Office, said that private payrolls bounce back after a disappointing January adds more uncertainty to the debate of when higher rates will lead to demonstrably slower hiring. Friday s nonfarm payrolls report will provide investors additional clarity, but all signs point to the labor market remaining resilient ahead of the Fed's next decision. In February, the leisure and hospitality industry added 83,000 new workers. The payroll growth in other industries last month included financial activities 62,000 manufacturing 43,000 and education and health services 35,000. The biggest losses were in the professional and business services sector, which lost 36,000 positions in February. The payrolls for construction fell by about 16,000.

Only large and medium businesses saw job gains last month, with a combined increase of 308,000. The small businesses that have struggled the most with the inflation crisis have lost 61,000 workers. The businesses with between one and 19 workers are the most affected by the losses.

In a potentially worrying sign for the Fed as it tries to wrangle inflation under control, wages remained elevated in February. Pay increases decreased 0.1 percentage point from the previous month, but they are still up 7.2% from a year ago.

There is a tradeoff in the labor market right now, said Nela Richardson, chief economist, ADP. We're seeing robust hiring, which is good for the economy and workers, but pay growth is still quite elevated. The slowdown in pay increases is unlikely to drive down inflation in the near term. The data is expected to show that employers hired 203,000 workers in February after a gain of 517,000 in January. The unemployment rate is expected to hold steady at 3.4%, a half-century low.