ADP Employment Growth Hits Lowest Level Since August, Raising Market Uncertainties Toward Fed's Next Decision

Before the reveal of the December non-farm payroll data, the ADP employment data unexpectedly slowed significantly, reaching its lowest level since August, indicating that there are still many uncertainties in the U.S. labor market.

On Wednesday, data released by the ADP Research Institute in collaboration with the Stanford Digital Economy Laboratory showed that the U.S. December ADP employment increased by 122,000 people, below the expected 140,000 and the previous value of 146,000.

Nela Richardson, Chief Economist at ADP, stated: "The labor market downshifted to a more modest pace of growth in the final month of 2024, with a slowdown in both hiring and pay gains."

Analysts believe that the ADP data indicate that the U.S. labor market gradually weakened in 2024 and continued through the end of the year. Federal Reserve officials must balance this trend with new inflation concerns when deciding on the interest rate cut path for 2025 and beyond.

After the data was released, the U.S. Dollar Index showed little short-term fluctuation, currently reported at 109.13. U.S. stock futures also showed little short-term fluctuation, with the Nasdaq 100 index futures maintaining a decline of about 0.1%.

The U.S. 10-year Treasury yield and Spot gold both showed little short-term fluctuation.

In overall, employment growth across industries was mixed, and wage growth further cooled.

The report showed that employment growth across industries was mixed. The largest increases were seen in education and health services, construction, and leisure and hospitality. The number of employees in manufacturing, natural resources and mining, and professional and business services decreased.

Wage growth further cooled. Workers who switched jobs saw a wage increase of 7.1%, while those who stayed in their jobs saw a wage increase of 4.6%, the lowest level since mid-2021.

By region, the West was the largest driver of employment growth. The vast majority of last month's employment growth came from companies with at least 500 employees.

On the same day, data released by the U.S. Department of Labor showed that the number of initial unemployment benefit claims for the week ending January 4th was 201,000, the lowest level since February. Meanwhile, the number of continued claims climbed to 1.87 million.

Earlier in the day, Federal Reserve Governor Christopher Waller expressed support for further interest rate cuts, stating that the pace of cuts would depend on the progress of inflation and the labor market. Waller believes The labor market is now close to the Federal Reserve's maximum employment target, with no signs that the labor market will weaken significantly soon. Meanwhile, tariffs are not expected to have a significant impact on inflation, therefore, in her view, If the outlook meets expectations, rate cuts will be supported in 2025.