ADP Report Shows U.S. Job Market Still Has Legs, Dims Hopes for a Dovish Fed Pivot

WATCH: Will the Fed finally blink?

The July 2025 ADP Employment Change report delivered a stronger-than-expected reading, reinforcing the narrative that the U.S. labor market remains resilient even as policymakers grapple with tariffs, slowing growth indicators, and elevated inflation concerns. Private employers added 104,000 jobs in July, handily topping expectations for 77,000 and reversing June’s downwardly revised gain of 23,000. The data underscores continued demand for workers across key sectors and suggests the Federal Reserve will have less room to signal a dovish shift at this afternoon’s FOMC decision.

ADP’s Chief Economist Nela Richardson described the report as “broadly indicative of a healthy economy,” pointing to employers’ confidence that consumer spending will remain resilient. The report also showed pay gains holding steady, keeping pressure on inflation-watchers as the Fed debates its next steps. Markets, which had been pricing in around 50 basis points of cuts this year, may scale back expectations for an aggressive policy pivot following today’s release.

Headline Numbers and Context

The addition of 104,000 jobs marks a clear rebound from June’s sluggish performance and highlights a labor market that continues to outperform expectations. Forecasts had called for 140,000 jobs, but July’s figure—combined with a meaningful positive revision to June—gives the report a firmer undertone than the headline might suggest. With this latest gain, the ADP report maintains a string of monthly increases that point to ongoing hiring momentum, albeit at a more measured pace than in the first half of the year.

The results came at a pivotal moment for markets. The Federal Reserve meets later today, with Chair Jerome Powell expected to keep rates unchanged while acknowledging emerging cracks in the economy. Yet, the ADP data, coupled with still-healthy wage growth, reduces the likelihood that Powell will lean as dovish as markets might have hoped.

Sector Breakdown: Services Lead, Healthcare Lags

Hiring in July was led by the services sector, which added 74,000 positions. Leisure and hospitality continued to play a key role, contributing 46,000 jobs as consumers showed no signs of cutting back on travel and entertainment despite higher costs. Financial activities posted a gain of 28,000, underscoring demand in white-collar services. Trade, transportation, and utilities added 18,000, reflecting steady goods movement even as tariff-related concerns loom.

On the weaker side, education and health services shed 38,000 jobs, continuing a year-to-date trend of softness in the sector. Professional and business services managed a modest 9,000 increase, while

Goods-producing industries also contributed meaningfully, adding 31,000 jobs. Construction led the group with a 15,000 gain, reflecting continued strength in infrastructure projects and housing demand. Manufacturing added 7,000, while natural resources gained 9,000.

Regional and Firm Size Trends

Regionally, the West led the pack with a 75,000-job surge, driven by strong growth in the Mountain and Pacific divisions. The South followed with a 43,000 increase, buoyed by the South Atlantic’s strength. The Midwest posted an 18,000 gain, while the Northeast lagged, losing 18,000 jobs, with sharp weakness in New England.

By establishment size, large and medium firms split the bulk of the gains. Companies with more than 500 employees added 46,000 positions, while medium-sized firms (50–249 employees) contributed another 46,000. Small businesses remained subdued, adding just 12,000, with the smallest firms (1–19 employees) accounting for most of the growth.

Wage Growth and Pay Insights

Wage growth remained a central focus. Job-stayers saw pay increase 4.4% year-over-year, unchanged from prior months, while job-changers enjoyed a 7% bump. Gains have now held steady for four consecutive months, signaling persistent wage stickiness that could keep underlying inflation elevated.

Within industries, financial activities led with a 5.1% pay increase for job-stayers, while construction and leisure/hospitality saw 4.5% gains. Manufacturing pay grew 4.6%. Across firm sizes, large and medium firms posted stronger wage growth at 4.7%–4.8%, while the smallest firms lagged at just 2.6%.

Implications for the Fed and Markets

The ADP report reinforces the idea that the U.S. labor market remains solid, despite tariff-related headwinds and cooling signs in pockets of the economy. For the Federal Reserve, today’s release complicates the case for immediate easing. The report’s combination of robust hiring and sticky wage growth could push Powell to adopt a more cautious tone, even as dissenters like Governors Waller and Bowman push for cuts.

Markets had been betting on roughly two-thirds odds of a September rate cut, but this data may temper those expectations. Treasury yields ticked higher in early reaction, while equity futures held modest gains ahead of the FOMC announcement.

Looking Ahead

July’s data supports the narrative that while hiring momentum has slowed from its early-year highs, the U.S. labor market is far from faltering. Consumer-facing sectors like leisure and hospitality remain robust, and the pickup in construction and financial activities suggests ongoing demand. However, softness in healthcare and education, alongside muted small-business hiring, highlights potential vulnerabilities.

All eyes now turn to Friday’s Nonfarm Payrolls report for confirmation. If the NFP report echoes ADP’s strength, it could all but solidify expectations that the Fed will remain sidelined through the summer, with only modest easing likely later this year.

In short, July’s ADP release shows the labor market still has legs—and for the Fed, that means less room to pivot dovish without more definitive signs of weakness ahead.

Do you want me to also attach a one-line technical note on how futures/Treasury yields are reacting this morning, so the piece feels more market-ready?