ADP Shock: Private Sector Sheds Jobs as Wage Growth Cools—Fuel for Fed Doves?

The September ADP National Employment Report underscored mounting weakness in the U.S. labor market at a time when the government shutdown has elevated the report’s importance. With the Bureau of Labor Statistics’ nonfarm payrolls release postponed until the shutdown ends, investors and policymakers are leaning heavily on ADP’s private payroll data. The results painted a soft picture: private employers shed 32,000 jobs in September, marking another step down in hiring momentum. This loss was amplified by ADP’s annual rebenchmarking, which recalibrated the September figure lower by 43,000 jobs compared with pre-benchmarked data. Despite this adjustment, the underlying story remained the same—job creation continues to lose steam across most sectors of the economy.

The topline figure showed private payrolls contracting, with broad weakness in both goods-producing and service-providing industries. Goods-producing employment fell by 3,000 jobs. Within that category, natural resources and mining offered a modest bright spot, adding 4,000 jobs. However, construction lost 5,000 positions and manufacturing declined by 2,000, continuing the cooling trend in industrial hiring that has persisted through much of 2025. These losses suggest that higher financing costs and softening demand are tempering activity in interest-rate sensitive industries like construction and manufacturing.

The much larger service-providing sector accounted for the bulk of the weakness, shedding 28,000 jobs. Several key areas dragged on the headline number. Trade, transportation, and utilities fell by 7,000, financial activities lost 9,000, professional and business services dropped by 13,000, and leisure and hospitality contracted sharply with a decline of 19,000 positions. “Other services,” a smaller catch-all category, also slid by 16,000. Taken together, these declines reflect broad caution by service-sector employers. The weakness in leisure and hospitality was particularly notable, as the sector had been an outsized driver of post-pandemic employment gains.

Offsetting some of the service-sector losses was strength in education and health services, which added 33,000 jobs. Information services also gained 3,000. The steady expansion in healthcare continues to stand out as one of the most resilient components of U.S. job growth, supported by demographic demand drivers and ongoing structural needs.

When viewed by establishment size, the September data revealed a striking divergence. Small businesses were hardest hit, with employment at establishments of fewer than 50 employees contracting by a combined 40,000. Medium-sized businesses with 50 to 499 employees also reduced headcount, shedding 20,000. By contrast, large establishments with 500 or more employees added 33,000 jobs, highlighting the relative resilience of bigger firms that can better weather uncertainty and absorb tariff- and rate-related costs. This size breakdown suggests that labor market stress is disproportionately falling on smaller employers.

Beyond job creation, ADP’s Pay Insights provided critical detail on compensation trends. Overall, pay growth showed signs of moderation. Year-over-year pay gains for job-stayers held steady at 4.5 percent, while pay gains for job-changers decelerated to 6.6 percent from 7.1 percent in August. The slowdown among job-changers was most evident in leisure and hospitality and financial activities, indicating reduced willingness among employers in these industries to pay up for new hires.

Breaking down pay growth by sector, goods-producing industries showed modest but stable increases. Natural resources and mining wages were up 4.3 percent, construction 4.5 percent, and manufacturing 4.7 percent for job-stayers. Service-providing sectors showed a broader spread. Trade, transportation, and utilities saw wage growth of 4.3 percent, information 4.3 percent, financial activities a firmer 5.2 percent, professional and business services 4.2 percent, education and health services 4.4 percent, leisure and hospitality 4.5 percent, and other services 4.1 percent. These figures reflect a broad pattern of mid-4 percent wage gains, with financial activities continuing to outpace the average.

The distinction between job-stayers and job-changers remains important. While job-stayers are still seeing relatively steady increases, the decline in pay growth for job-changers suggests that labor market tightness is easing. Historically, cooling job-changer pay growth has been an early indicator of broader wage disinflation, aligning with the Fed’s goal of reducing labor cost pressures without triggering a severe recession.

Revisions also played a role in shaping the September picture. The prior month’s result was revised down to a 3,000 job decline from an initial reading of a 54,000 increase. This downward revision reinforces the view that the labor market has been weaker than previously reported, and it highlights the fragility of private payroll growth heading into the final quarter of the year.

The context of the report is especially important. With the U.S. government shutdown halting publication of official labor statistics, the ADP data assumes greater significance than usual. Investors and policymakers will be forced to rely on it as a key barometer of labor market health until normal BLS reporting resumes. For the Federal Reserve, the weakness in payrolls and signs of moderating pay growth strengthen the case of dovish policymakers advocating for rate cuts. While the Fed has already signaled a willingness to provide further accommodation if the labor market softens, these figures add urgency to that debate.

Financial markets reacted with a degree of relief, interpreting the weaker jobs data as justification for additional Fed easing. Equities caught a bid on the release, but the enthusiasm may prove short-lived as the ongoing government shutdown clouds sentiment. The S&P 500 futures remain pinned around the 6700 level, a battleground area where buyers are reluctant to commit in size. For now, the combination of a softer labor market and policy gridlock has left investors cautious, balancing the prospect of Fed support against the risks of prolonged political dysfunction.