Private employers in the United States experienced a significant decline in employment in September 2023, marking the largest job loss in two-and-a-half years. According to data from payroll processor ADP, the private sector shed 32,000 jobs last month. This figure was far below economists’ expectations for an increase of 50,000 positions and has raised concerns regarding the overall health of the labor market.
The unexpected contraction in private employment is notable as it follows a revised figure for August, which was adjusted downward from 54,000 to just 3,000 jobs added. This marks the first consecutive monthly decline since the summer of 2020. The latest figures come at a time when the government shutdown has halted the release of official employment statistics by the Bureau of Labor Statistics, making privately produced reports like ADP’s increasingly significant for investors and policymakers.
Impact on Financial Markets and Economic Outlook
The reported decline in private sector jobs has triggered a rally in US Treasuries, resulting in a drop in yields. The yield on the two-year US Treasury, which closely aligns with interest rate expectations, fell by as much as 0.07 percentage points to a two-week low of 3.54 percent after the ADP figures were released. Wall Street’s benchmark S&P 500 index rebounded from an initial decline of 0.5 percent to close 0.3 percent higher, reaching a record high.
Economists at JPMorgan described the ADP report as indicative of “increasing negative momentum” in the labor market, suggesting a potentially softer official jobs report could follow. The US Federal Reserve has indicated that risks to employment are leaning towards the “downside,” especially as it deliberates on future interest rate cuts. Market analysts anticipate further reductions in rates as concerns about employment overshadow inflation risks related to tariffs imposed by former President Donald Trump.
The latest data also highlighted trends within the labor market, showing that small- and medium-sized businesses were particularly affected, although larger firms with at least 500 employees managed to add jobs, somewhat offsetting the overall decline.
Sector-Wide Employment Trends and Future Implications
Stephen Brown, deputy chief North America economist at Capital Economics, characterized the trend as “concerning,” noting that private employment has contracted across most sectors. The widespread nature of these job losses could strengthen the case for more dovish policies among Federal Reserve decision-makers, who are worried about the potential for a sudden deterioration in labor market conditions.
While the ADP report is not typically viewed as a reliable predictor of non-farm payroll growth, it serves as a crucial alternative data source amidst the ongoing government funding debate. Economists at Goldman Sachs emphasized that the availability of various economic reports allows markets to maintain an informed perspective on job trends, even without federal data.
As the situation develops, both investors and policymakers will be closely monitoring these labor market signals, which hold considerable implications for economic policy and financial markets in the coming months.
