What 26 Million Paychecks Reveal About the Economy (With Nela Richardson)

Nela Richardson · ADP

Hiring is concentrated in healthcare, with leisure gains and weakness in finance, professional services and information.

Richardson says the sector story is unchanged even though the headline number differs. Healthcare is driving job additions. Leisure and hospitality is still adding jobs despite weak consumer sentiment. Finance and professional business services are still weak. Manufacturing is modestly up, with slightly stronger construction gains. The information sector has even posted outright losses, with only about 3,000 jobs created in September.

“[Healthcare] driving those jobs. We're still seeing additions in leisure and hospitality despite consumer sentiment being downtrodden. We're still seeing weakness in finance and professional business jobs”at 18:47

Nela Richardson · ADP

Wage-price spiral risk is low; wages are nowhere near overheating even when inflation exceeded 7%.

Richardson argues the labor market was never at risk of a wage-price spiral, even when US inflation was above 7%. Current inflation is well below that level and has improved. She says it would take a tectonic shift to move her from watchful to worried about wages. She ties base pay to labor tightness, noting firms are reluctant to raise base pay and instead use off-cycle bonuses in hot markets.

“Because even when inflation was above 7%, in The United States, the labor market was at no risk of tipping over into a wage price spiral. It just didn't happen. And we're nowhere near 7%.”at 28:59

Nela Richardson · ADP

Low-income workers' pay growth is driven by longer hours; base pay is nearly identical across income quartiles.

Gross pay growth is faster for the bottom 25% of earners, but that comes from working more hours. Base pay growth is essentially indistinguishable across quartiles. The lower-income cohort therefore has to work more hours just to keep pace with inflation. Richardson calls this the reality of life now: keeping a standard of living on lower pay requires more hours.

“The bottom pay growth is growing faster, and that's true. It's because they're working more hours. But if you look at the base, they're basically indistinguishable from each other.”at 33:02

Nela Richardson · ADP

AI is hurting early-career workers in exposed fields while augmentation helps older workers.

ADP's Canaries dashboard, built with Stanford's Digital Economy Lab, finds AI's effect shows up in early-career workers in exposed fields such as customer service and software development. Workers aged 22 to 25 have seen a steady contraction of about 3% a year since ChatGPT's rollout. Non-business fields are not seeing the same contraction and are growing slightly, and later-career workers are seeing employment pick up. Richardson's distinction is that AI that augments advantages older workers, while AI that automates disadvantages younger ones.

“AI's impact seems to be showing up in early career for AI exposed fields, like customer service agents or software developers... for those younger workers between 22 to 25, you're seeing a pretty steady contraction since the rollout of ChatGPT at about 3% a year.”at 34:09

Nela Richardson · ADP

AI is eroding the value of some high-value tasks, such as explaining technical details, since ChatGPT's launch.

Richardson argues that some high-value tasks are losing value since ChatGPT was released in October 2022. Explaining technical details is her example, because AI can now do it in a way that was not possible about five years earlier. ADP's payroll data lets her track how task values change over time, and she plans to extend this from IT to 700+ occupations and track it within industries and companies, to help employers see which tasks are gaining value and how to upskill workers toward them.

“So there are some high value tasks that are actually losing value with the inception of ChatGPT in October 2022. One of those things is explaining technical details.”at 36:57

Nela Richardson · ADP

AI productivity gains depend on a skilled workforce, not technology alone.

Richardson uses history to argue that technology needs skilled workers to deliver productivity. US productivity was lowest in the 1970s and early 1980s, when the baby-boom workforce entered with much less experience. Productivity peaked in the late 1990s, when the internet was credited, but she argues that the workforce then was the most skilled the US had seen and knew how to use the technology. She says the internet arriving in the 1970s would not have produced the same boom. Her optimism rests on young people building the skills to harness AI for economies, employers and workers.

“If the Internet had come in the nineteen seventies, would we have had the same boom? I don't think so. ... I think you need skilled workers.”at 39:06

Collin Martin · Charles Schwab

Rising global yields reflect shifting Fed expectations and resilient US growth, not US debt problems.

Most developed-market yields have risen this year. Martin says US yields are not driven by US problems. The Fed was expected to cut, but it has hiked once and is expected to hike again, and US growth is strong and resilient, with nominal growth very strong. He contrasts this with France and the UK, where yields rise on debt-sustainability worries.

“I think it's due to the shifting outlook for Fed policy, the idea that the Fed was likely going to cut rates and now they have hiked once and expected to hike a little bit more, and the idea that our growth is strong, resilient.”at 1:37

Collin Martin · Charles Schwab

Bond market yields are relatively attractive for investors with few borrowings, though yields may rise further.

Higher yields have made the bond market relatively attractive for investors who are not heavy borrowers. Martin hedges that the firm is worried yields could rise a little further, which would hurt the borrowing side of the picture.

“If you don't have many borrowings, you're looking to go into the bond market right now, we do think the opportunity is relatively attractive, even though we're worried that yields might continue to rise a little bit higher.”at 4:59

Liz Ann Sonders · Charles Schwab

The 10-year yield is the key link to stocks; stocks take a bigger hit when yields rise.

Sonders says the 10-year yield is the yield most relevant to stocks. On both rolling one-year and one-month bases, bond yields and stock prices remain negatively correlated. Stocks tend to take a larger hit on the downside when yields rise than they gain when yields fall.

“at its broadest level, the yield that is most relevant to the stock market in terms of things like correlations is the ten year yield. ... Tend to get a little bit more of a hit on the downside when yields are rising relative to when yields are falling.”at 5:44

Liz Ann Sonders · Charles Schwab

Higher yields are hurting rate-sensitive sectors and unprofitable, debt-heavy small caps, masked at index level.

Weakness shows in utilities and real estate. In small caps, unprofitable Russell 2000 stocks were up about 20% in 2025 versus about 10% for profitable ones, but this year has nearly reversed, with unprofitable names significantly underperforming. Sonders links this to higher yields, and she points to zombie companies that cannot cover interest on their debt, whose interest costs are rising. Cap-weighted indexes mask this because of concentrated tech leadership.

“We have the nonprofitable stocks significantly underperforming, and I think that's also a function of higher yields.”at 8:08

Nela Richardson · ADP

Real wage losses from 2021–2024 inflation explain why consumer sentiment remains depressed.

ADP and University of Chicago research tracked about 16 million workers from 2021 to 2024. 43% saw real wage declines, averaging 8%. Even among job changers, more than 30% saw real declines. Workers try to outrun inflation by switching jobs, but they can only do that once. Lost purchasing power is the starting point for many people, and it explains why consumer sentiment is at rock-bottom levels. Workers care about purchasing power, not the inflation rate.

“But here's where I am worried... showed that during that high inflation period, 43% of workers saw real wage declines, and the average decline was 8%.”at 29:24

Liz Ann Sonders · Charles Schwab

Lower-income households face a double real squeeze as nondiscretionary prices rise faster.

Lower-income households spend a higher share of disposable income on nondiscretionary items. Those categories have seen more upward price pressure than discretionary goods. Sonders calls this a double real whammy that likely exacerbates the squeeze on that group, and she thinks ADP's data likely reflects it too.

“generally on the lower end of the income spectrum, a higher share of disposable income goes toward nondiscretionary items. And we've seen more upward price pressure there than some of the discretionary items. So it's it's almost a double real whammy”at 32:17

Collin Martin · Charles Schwab

Long-term Treasury yields, up about 100bp this year, pull mortgage rates up and worsen housing affordability.

Mortgage rates are tied to long-term Treasury yields such as the 10-year and 30-year, not to the Fed funds rate. The 10-year yield is up roughly 100bp this year, which pulls mortgage rates higher. Combined with high home prices, this creates a double whammy that makes affordability especially difficult. The Fed-driven rise in short rates also does not directly set mortgage rates.

“mortgage rates are generally tied to long term Treasury yields, like the ten year treasury yield, maybe the thirty year treasury yield. So when long term yields rise, that tends to pull up mortgage rates as well and the ten year treasury yield just this year alone is up around a full percentage point, 100 basis points.”at 2:33

Liz Ann Sonders · Charles Schwab

Company outlook messages on margins, productivity and AI capex are a more important macro signal than data.

Earnings matter, but for Sonders the messages companies give on conference calls are arguably one of the more important macro signals. Beyond reported earnings, companies' forward outlook on profits, profit margins, productivity, and AI capex, and how these feed into the economy, is what she will watch. She treats this as a stronger signal than economic data releases or geopolitics.

“messages coming from companies as they report these conference calls, arguably, maybe one of the more important macro signals. We think of macro signals as coming from economic data as it comes in or what's going on with geopolitics.”at 9:03

Collin Martin · Charles Schwab

Favorable on investment-grade and high-yield credit; risk concentrated in CCC and floating-rate junk borrowers.

Martin sees no broad-credit risk and still has a favorable view on investment-grade and high-yield corporates. Risk sits at the lowest rating tiers, such as CCC or low single-B issuers, which have volatile cash flows and thin margins, so an extra percentage point or two of borrowing cost hurts their ability to pay. Smaller companies with floating-rate debt see Fed-driven coupon increases almost immediately.

“We still have a favorable view on investment grade corporate and even high yield corporates, but we're cognizant of the risks at the lowest parts of the spectrum.”at 10:47

Nela Richardson · ADP

Rising overtime in upstream manufacturing (chemicals, power, steel) signals an economic boom starting.

Overtime pay is rising in upstream industries such as chemicals, electricity and steel, but not in consumer manufacturing like apparel or beverages. Manufacturers are struggling to meet AI buildout demand and cannot hire enough workers for second and third shifts, so they pay overtime. Richardson thinks manufacturing will lead services, but headcount alone will not show it, so pay premiums and overtime are the better signals. Upstream sectors power the start of an economic boom cycle.

“We're seeing it in upstream industries. Those industries, whether it's chemical or electricity or steel, that power a boom and power the start of an economic boom cycle.”at 25:37

Liz Ann Sonders · Charles Schwab

High diesel prices will feed through to the economy, likely showing up first in producer prices.

Sonders says the team is starting to think about how high diesel prices ripple through the economy. Some thinking holds that the first place this shows up could be the producer price index, so she is watching the upcoming PPI release for those ripple effects. The argument is a hypothesis about pass-through from fuel costs into producer and then consumer prices. It is supported by the timing logic, not by data she cites.

“we're starting to think about the ripple effects of high diesel prices and how those work their way into the economy. And there's some thought that where we're more likely to see it show up first could be in the producer price index.”at 41:08

Collin Martin · Charles Schwab

US inflation is still too high; core CPI must rise 0.2% or less monthly to resume disinflation.

Martin says the CPI report matters for the path of Fed policy. He wants monthly core CPI increases of 0.2% or less as evidence the disinflation trend is back on track. He backs his view that inflation is too high with breadth data: nearly 80% of CPI components were rising 2% or more year over year in August. He says that is too high against the Fed's 2% target and hopes it will start to come down.

“We're looking for monthly increases of 0.2% or less to give us confidence that the disinflationary trend is back on track.”at 41:53