Private sector employment growth slowed to its weakest pace in more than three-and-a-half years in August, providing another sign of a deteriorating labor market, according to ADP.
Companies hired just 99,000 workers during the month, down from a downwardly revised 111,000 in July and below the Dow Jones forecast of 140,000.
August was the weakest month for job growth since January 2021, according to data from the payroll processing firm.
“The downward trend in the labor market has led to hiring slowing below normal after two years of strong growth,” said Nela Richardson, chief economist at ADP.
The report confirms multiple recently emerged data points showing that hiring has slowed significantly from its astonishing pace in the wake of the Covid outbreak in early 2020.
Job openings in July hit their lowest level since January 2021, according to a report from the Labor Department on Wednesday, while Challenger Gray & Christmas reported on Thursday that it was the worst August for layoffs since 2009 and the slowest year for hiring since the company began tracking the metric in 2005.
However, ADP data showed that while hiring slowed sharply, only a handful of sectors reported actual job losses. Professional and business services fell by 16,000 jobs, manufacturing lost 8,000 jobs, and information services dropped by 4,000 jobs.
The latest Labor Department data also helped allay concerns about widespread layoffs, with initial jobless claims falling to 227,000 in the week ended Aug. 31, slightly below the consensus forecast of 229,000.
On the positive side, the education and health services sector added 29,000 jobs, the construction sector added 27,000 jobs, and other services contributed about 20,000 jobs. Financial activities also saw an increase of about 18,000 jobs, and the trade, transportation and utilities sector rose by about 14,000 jobs.
In terms of size, companies with fewer than 50 workers reported a loss of 9,000 jobs, while companies with between 50 and 499 jobs gained about 68,000 jobs.
Wages continued to rise, but at a slower pace than some previous gains. Annual pay rose 4.8% for those who remained employed, roughly the same level as in July, according to ADP.
Now, the ADP data is poised for the closely watched nonfarm payrolls report, due out Friday from the Bureau of Labor Statistics. While the two reports may differ widely, they were close to exactly in line for July.
The forecast is for a gain of 161,000 jobs, after a gain of 114,000 in July, with the unemployment rate falling to 4.2%, though the latest data could add some downside risks to the estimate. According to the Bureau of Labor Statistics, private sector jobs increased by just 97,000 in July.
Markets expect the weak jobs picture to prompt the Federal Reserve to cut interest rates when it meets on September 17 and 18. The key question is how quickly and aggressively the Fed will move, with current market pricing pointing to at least a quarter-point cut at this month’s meeting and a full-point cut in the federal funds rate by the end of 2024.
ADP reported that it had revisited its data based on the quarterly Census of Employment and Wages, resulting in a decline of 9,000 jobs for the August report. A similar revision from the Bureau of Labor Statistics indicated that 818,000 more nonfarm payroll jobs were added between April 2023 and March 2024. ADP will make a full-year revision in February 2025.
