The ADP national employment report shows a modest increase in payrolls in December, although hiring remains concentrated in a few narrow sectors. Job gains were present in all sizes of establishments. The increase in December still reflects economic uncertainty and restructuring after massive cuts in government jobs and disruptions from rapid adoption of AI tools.

In December, private payrolls rose 41,000 after a small upward revision to November to down 29,000. The December rise is close to the consensus of up 47,000 in the Econoday survey of forecasters.

Payrolls decline 3,000 in December at goods-producers with a decrease of 5,000 in manufacturing and increase of 1,000 in both construction and natural resources and mining. Service-providers' payrolls are up 44,000 in December. The most substantial increases are 39,000 in education and health services, and 24,000 in leisure and hospitality. There were also gains of 11,000 in trade, transportation, and utilities, 6,000 in financial activities, and 5,000 in other services. There are decreases of 29,000 in professional and business services and 12,000 in information.

By establishment size, small businesses (1-49 employees) added 9,000 to payrolls, medium firms (50 to 499 employees) added 34,000, and large establishments (500+ employees) added 2,000.

The labor market remains competitive for workers with the right skills and/or experience. The ADP pay insights show a year-over-year rise in pay for job-changers of 6.6 percent in December compared to 6.3 percent in November. On average, job-stayers are still getting decent increases in pay at up 4.4 percent in December and November.

Private payrolls are seen up 47 K in December after dropping 32K in November. If this is the new normal for monthly job growth, it is not impressive.

The national employment report from Automated Data Processing Inc. is computed from ADP payroll data and offers advance indications on the U.S. workforce. ADP's data cover more than 500,000 companies totaling more than 25 million employees. The report is produced by ADP Research Institute in collaboration with Stanford Digital Economy Lab.

Market players have become accustomed to the excitement on employment Friday and realize the rich detail of the monthly employment situation can help set the tone for the entire month. While economists have improved their nonfarm payroll forecasts over the years, it is not unusual to see surprises on employment Friday. To that end, the ADP's national employment report can help improve the payroll forecast by providing information in advance of the employment report.

The employment statistics also provide insight on wage trends, and wage inflation is high on the list of enemies for the Federal Reserve. Fed officials constantly monitor this data watching for even the smallest signs of potential inflationary pressures, even when economic conditions are soggy. If inflation is under control, it is easier for the Fed to maintain a more accommodative monetary policy. If inflation is a problem, the Fed is limited in providing economic stimulus.

By tracking jobs, investors can sense the degree of tightness in the job market. If wage inflation threatens, it's a good bet that interest rates will rise; bond and stock prices will fall. No doubt that the only investors in a good mood will be the ones who watched the employment report and adjusted their portfolios to anticipate these events. In contrast, when job growth is slow or negative, then interest rates are likely to decline - boosting up bond and stock prices in the process.