Private Sector Employment Declines by 32,000 in September, ADP Reports

Private sector employment in the United States decreased by 32,000 jobs in September, marking the largest decline since March 2023, according to the latest report from payroll processing firm ADP. This downturn contrasts with economists' expectations of a 45,000 job increase. Additionally, August's figures were revised downward to a loss of 3,000 jobs from an initially reported gain of 54,000.

The decline was widespread across various sectors. Education and health services added 33,000 positions, likely due to school reopenings and ongoing healthcare hiring. However, leisure and hospitality lost 19,000 jobs as the vacation season ended. Other sectors experiencing job losses included other services (-16,000), professional and business services (-13,000), trade, transportation, and utilities (-7,000), and construction (-5,000). Service providers overall decreased by 28,000 jobs, while goods producers shed 3,000 positions. Small businesses with fewer than 50 employees saw a reduction of 40,000 jobs, whereas large companies with 500 or more employees added 33,000 positions.

Nela Richardson, ADP's chief economist, commented on the cautious approach of U.S. employers: "Despite the strong economic growth we saw in the second quarter, this month's release further validates what we've been seeing in the labor market, that U.S. employers have been cautious with hiring."

The U.S. economy expanded by 3.8% in the second quarter and is projected to grow by 3.9% in the third quarter, according to the Atlanta Federal Reserve's GDPNow tracker. Despite a relatively low unemployment rate of 4.3%, concerns about the labor market persist. Boston Federal Reserve President Susan Collins noted potential risks: "My baseline outlook doesn't see the labor market softening much further – but there are risks. In particular, I see some increased risk that labor demand may fall significantly short of supply, leading to a more meaningful and unwelcome increase in the unemployment rate."

The ADP report gains additional significance amid the current U.S. government shutdown, which has led to a suspension of federal data releases, including the Bureau of Labor Statistics' nonfarm payrolls report and the Labor Department's weekly jobless claims count. This data blackout complicates the Federal Reserve's decision-making process regarding interest rates, with the next meeting scheduled for October 28-29. Markets widely anticipate a quarter-point rate cut by the central bank.

In terms of wages, September saw a 4.5% annual growth rate for those remaining in their positions, consistent with August figures. However, the wage increase for job changers slowed to 6.6%, down half a percentage point from the previous month.

ADP also recalibrated past counts based on recent Bureau of Labor Statistics benchmark revisions, resulting in a downward adjustment of 43,000 jobs for September. Richardson emphasized the ongoing trend: "The narrative remains the same ... of a slowing in hiring momentum."

This report underscores the challenges facing the U.S. labor market amid economic uncertainties and policy decisions.