U.S. Job Growth Slows to Three-Year Low in August, ADP Reports

The latest ADP employment data shows that in August, employees in the United States increased by 99,000, significantly lower than the expected 145,000, marking the slowest growth rate in three years and indicating that the U.S. labor market is deteriorating.

Specifically, in August, the United States saw a decrease of 16,000 positions in professional and business services, 8,000 positions in manufacturing, and 4,000 positions in information services. However, the ADP data also indicates that not all industries experienced job losses: for example, the education and health services sector added 29,000 positions last month, construction added 27,000, and trade, transportation, and utilities recorded 14,000 new positions.

When looking at company size, small companies were more cautious in hiring than larger companies: companies with fewer than 50 employees reduced their workforce by 9,000 jobs last month, while companies with 50 to 499 employees added 68,000 jobs in August.

Overall, the trend in U.S. corporate recruitment in August was downward.

ADP Chief Economist Nela Richardson said, The job market's downward drift brought us to slower-than-normal hiring after two years of outsized growth.

Before this report, recently disclosed employment data has already shown that compared to the recruitment boom after the outbreak of COVID-19 in early 2020, U.S. corporate recruitment activities have significantly slowed down in recent months.

Earlier, the Labor Department's report on job openings in July also hit the lowest point since January 2021, and the report from Challenger, Gray & Christmas also pointed out that the United States experienced the most severe layoffs in August since 2009, and the slowest recruitment speed recorded by the report since it started tracking the metric in 2005.

After this ADP employment data, the next focus of the market will be the non-farm employment report to be announced by the U.S. Bureau of Labor Statistics tomorrow night. Although there may be differences in the data between the two reports, they were almost completely consistent in July.

The market's expectation for the non-farm report is that after adding 114,000 jobs in July, the number of employed people in the United States in August is expected to exceed 161,000, and the unemployment rate will also slightly decrease to 4.2%. It should be noted that although an employment number of around 160,000 will make August this year one of the weakest months for recruitment since the epidemic, recent relevant data seems to indicate that this conservative expectation still has a certain downside risk - because according to the data from the U.S. Bureau of Labor Statistics, the number of employed people in the private sector in July only increased by 97,000.

Considering that the Federal Reserve will announce a new interest rate decision on the 17th and 18th of this month, a series of readings including the ADP report and tomorrow's non-farm will be an important reference for the Federal Reserve to assess the economic situation and employment environment. Federal Reserve officials have previously stated that they are now more concerned about the risks in the labor market, so the current mainstream view in the market is that the weakness in the job market will eventually lead the Federal Reserve to open the door to interest rate cuts at this month's interest rate meeting. However, the speed at which the Federal Reserve will take action, or how actively it will adopt measures, is still unclear.

After the latest ADP data was released, as of press time, the probability of the Federal Reserve cutting interest rates by 25 basis points and 50 basis points on Fed Watch is still fifty-fifty-no significant change from earlier.

However, this may be because ADP officials also stated in the report that they have rebased the data according to the quarterly employment and wage census, which also led to a reduction in the number of jobs in the August report. The U.S. Department of Labor has also made a statement on similar adjustments, and at that time, the data released by the U.S. Department of Labor showed that from April 2023 to March 2024, the number of new non-farm employees in the United States was reduced by 818,000 compared to the initially counted number, causing market concerns.

If ADP's number accurately foreshadows the payrolls increase we will see tomorrow - this is not always the case - then the unemployment rate will rise and the BLS statistics will show a looser labor market, economists Carl Weinberg and Rubeela Farooqi said in a report. That is not what the Fed wants to see.