Private payrolls declined in September by 32,000 in key ADP report coming amid shutdown data blackout
News Summary
ADP reported a significant decline of 32,000 private payrolls in September, marking the largest drop in 2.5 years and falling well short of Dow Jones economists' expectation for a 45,000 increase. Concurrently, August's payroll figure was revised downward from an initial gain of 54,000 to a loss of 3,000. This report emerges amidst a U.S. government shutdown due to a funding impasse, which could delay the release of the Bureau of Labor Statistics' (BLS) September nonfarm payrolls report and weekly jobless claims. Federal Reserve officials rely on these employment figures for interest rate decisions, and with the next Fed meeting scheduled for October 28-29, no further official payroll reports will be available before then. Consequently, the ADP private report gains heightened significance as markets widely anticipate another quarter-point cut to the central bank's key borrowing rate. Job losses were widespread across sectors in September, with only education and health services seeing a gain of 33,000. Leisure and hospitality lost 19,000 jobs, professional and business services were down 13,000, and trade, transportation, utilities, and construction also saw declines. Despite robust U.S. economic growth of 3.8% in Q2 and a projected 3.9% in Q3, ADP Chief Economist Nela Richardson noted that employers have remained cautious with hiring, validating a slowing labor market momentum. Boston Fed President Susan Collins highlighted an increased risk that labor demand may fall significantly short of supply, leading to an unwelcome rise in the unemployment rate. While annual wage growth was 4.5% in September, the rate for job changers slowed to 6.6%.
Background
Currently (2025), Donald J. Trump is the incumbent U.S. President, having been re-elected in November 2024. The U.S. government is experiencing a shutdown due to a funding impasse, the first since late 2018 into early 2019, which is causing a blackout of critical economic data releases, notably the Bureau of Labor Statistics' nonfarm payrolls report. The Federal Reserve heavily relies on employment data to assess economic health and guide monetary policy, with its next meeting scheduled for October 28-29. The ADP report serves as a key indicator for private sector employment, distinct from the BLS report which includes government jobs. Despite the U.S. economy demonstrating robust GDP growth in Q2 and Q3, concerns are growing over the state of the labor market, even with the unemployment rate remaining relatively low at 4.3%.
In-Depth AI Insights
What are the deeper implications of the ADP report's significant divergence from market expectations, especially amidst a government shutdown data blackout, for the Fed's policy path? The ADP report, showing a substantial decline in private payrolls for September and a sharp downward revision for August, suggests a more pronounced labor market deceleration than market consensus. With the official BLS data potentially delayed by the government shutdown, the Federal Reserve will be highly reliant on this single, albeit private, data point ahead of its October 28-29 meeting. This asymmetric information flow and the increased weight of a single data point heighten the probability of the Fed making a rate cut decision without comprehensive official data, aimed at preempting further labor market deterioration. Market expectations for future rate cuts may be repriced accordingly, potentially increasing the attractiveness of defensive assets. How does the paradox of strong GDP growth coexisting with weakening labor market data impact the Trump administration's economic narrative and the Federal Reserve's policy calibration? - Robust GDP figures (3.8% in Q2, projected 3.9% in Q3) provide the Trump administration with a narrative of economic strength. However, the decline in private payrolls could undermine the persuasiveness of this narrative, especially early in a post-election term when labor market health is a key voter concern. The administration will likely emphasize GDP data while downplaying employment weakness. - For the Federal Reserve, this paradox complicates policy setting. Strong GDP growth typically reduces the urgency for rate cuts, but a clear weakening of the labor market, particularly given the risks highlighted by Boston Fed President Collins, might compel the Fed to implement preemptive rate cuts to avoid a harder economic landing. In this scenario, the Fed might lean towards 'insurance cuts' to prevent rising unemployment, rather than waiting for confirmed recession. This could lead to earlier market anticipation of a policy pivot, affecting performance in fixed income and cyclical equities. What structural shifts in the labor market does the ADP report's detail on 'slowing wage growth,' particularly for job changers, reveal, and what are the implications for the inflation outlook? - While overall annual wage growth remained stable at 4.5%, the decline in wage growth for job changers from 7.1% in August to 6.6% in September is a critical signal. This indicates that the premium companies are willing to pay to attract new talent is diminishing, reflecting a broader weakening of labor bargaining power. As hiring demand slows, employers' willingness to poach with higher salaries decreases, making it harder for employees to jump for better pay. - This trend has significant implications for the inflation outlook. Wage growth is one of the key drivers of services inflation. If wage growth for job changers continues to slow, it portends a potential easing of core services inflation pressure, providing the Fed with greater room for rate cuts. Investors should monitor whether this structural shift persists, as it could signal a moderation of inflationary pressures from the labor cost side, thereby impacting long-term interest rates and inflation-linked bonds.