Private employers in the United States reported a significant reduction in jobs during September 2023, marking the largest decline in two and a half years. According to payroll processor ADP, private sector employment fell by 32,000 positions last month, deviating sharply from economists’ expectations of a 50,000 job increase. This unexpected downturn has prompted a rally in US Treasuries, contributing to a decline in yields.
Investors and policymakers are increasingly relying on private economic reports due to the ongoing government shutdown, which has halted the release of official data from the Bureau of Labor Statistics. The anticipated jobs report, originally scheduled for release on October 6, will consequently not be published. The contraction in private employment in September is the most significant since March 2023 and follows a substantial downward revision of August’s employment figures. The August numbers were adjusted from 54,000 to just 3,000, indicating a concerning trend as this marks the first back-to-back monthly drop since the summer of 2020.
The method used by ADP to align its data with comprehensive government figures contributed to a downward adjustment of 43,000 jobs for September. Despite the revisions, Wall Street economists pointed out that the report highlights a cooling trend in the labour market. JPMorgan remarked to clients that the findings indicate “increasing negative momentum” in employment, suggesting a potential soft official jobs report is forthcoming.
The US Federal Reserve has indicated that risks to employment are skewed to the “downside,” which played a role in its recent decision to cut interest rates. Market sentiment is shifting towards anticipating further rate cuts, as apprehensions regarding the jobs market have begun to overshadow inflation concerns related to tariffs imposed by former President Donald Trump.
Following the ADP report, the yield on the two-year US Treasury fell by as much as 0.07 percentage points to a two-week low of 3.54%. While yields initially recovered after data from the Institute for Supply Management indicated steady US manufacturing activity, they eventually returned to session lows in the afternoon.
On the stock market front, the benchmark S&P 500 index rebounded from an early decline of 0.5%, ultimately closing 0.3% higher, reaching a record close for the index. Although the ADP report is not typically viewed as a reliable indicator of non-farm payroll growth, it remains significant amid the ongoing governmental budget discussions.
Economists from Goldman Sachs noted that the availability of alternative economic reports means markets will not be operating “fully blind” to the data trajectory. The ADP report revealed job losses predominantly in small- and medium-sized businesses, although larger companies with at least 500 employees partially offset these losses.
The trend of declining private employment raises concerns among economists. Stephen Brown, deputy chief North America economist at Capital Economics, characterized the situation as “concerning,” emphasizing that job contraction was observed across most sectors. The widespread nature of these losses may lend credence to the more dovish members of the Fed’s rate-setting panel, who have expressed apprehensions regarding a potential deterioration in labour market conditions.
