US Private-Sector Employment Sees Unexpected Decline
The latest ADP National Employment Report has revealed that US private-sector employment experienced an unexpected decline in September. This drop in employment reinforces the signs of a slowing labor market, despite the country’s economic growth remaining robust. According to the report, private employers lost 32,000 positions in September, contradicting economists’ expectations of a gain of around 51,000.
Reasons Behind the Decline
Nela Richardson, ADP’s chief economist, stated that the decline is a result of US employers being cautious with hiring, which is consistent with the narrative of slowing hiring momentum. The contraction occurs at a sensitive time, as the federal government shutdown has stopped the publication of official Bureau of Labor Statistics figures, increasing the importance of ADP’s data.
Industry-Wide Decline
The decline was broad-based, with service-providing industries losing 28,000 positions, led by a fall of 19,000 in leisure and hospitality. Professional and business services contracted by 13,000 jobs, other services by 16,000, and trade, transportation, and utilities by 7,000. Construction shed 5,000 jobs, while manufacturing declined by 2,000. However, education and health services provided a bright spot, adding 33,000 jobs, as the school year began and health care hiring continued to expand.
Impact on Small Firms
Smaller firms were hit the hardest, with companies having fewer than 50 employees cutting 40,000 jobs. Medium-sized businesses also experienced staff reductions, while larger employers, those with more than 500 workers, added 33,000 positions. This highlights the uneven burden of the slowdown, with smaller firms feeling the effects more significantly.
Slowing Pay Growth
Pay growth also showed signs of slowing down, with annual pay increases for those who stay in their jobs staying steady at 4.5 percent. However, those who switch jobs saw their pay rise more slowly to 6.6 percent, down from 7.1 percent in August.
Labor Market Cooling
The data adds to a series of reports indicating a cooling labor market. The unemployment rate rose to 4.3 percent in August, the highest since October 2021, while job openings increased only slightly, and both hiring and quit rates declined slightly. The country also lost 13,000 jobs in June, the first monthly decline since 2020, according to official statistics.
Federal Reserve’s Response
Susan Collins, president of the Federal Reserve Bank of Boston, stated that her baseline forecast does not anticipate the labor market weakening much further. However, she cautioned that there are risks, particularly the risk that labor demand may fall significantly short of supply, leading to a more meaningful and unwelcome increase in the unemployment rate. Markets are closely watching ahead of the Fed’s upcoming meeting on October 28-29, with the ADP report increasing expectations that the central bank will cut its key borrowing rate by another quarter point.
Conclusion
In conclusion, the unexpected decline in US private-sector employment in September reinforces the signs of a slowing labor market. The broad-based decline, impact on small firms, and slowing pay growth all contribute to a cooling labor market. As the Federal Reserve prepares for its upcoming meeting, it will be important to balance strong GDP growth with rising signs of labor market weakness. The future of the labor market remains uncertain, and it will be crucial to monitor the situation closely in the coming months.
