Private sector payrolls grew at the slowest rate in three and a half years in August, according to ADP, a new sign of a deteriorating labor market.
Companies hired just 99,000 workers during the month, down from a downwardly revised 111,000 in July and below the Dow Jones consensus forecast of 140,000.
August marked the weakest month of job growth since January 2021, according to data from the payroll company.
“The downward trend in the jobs market has led to slower than normal hiring after two years of strong growth,” said Nella Richardson, ADP’s chief economist.
The report supports several recent data points showing that hiring has slowed significantly from the ferocious pace following the COVID-19 pandemic in early 2020.
The Labor Department’s report released Wednesday also showed job openings in July hit the lowest level since January 2021. Meanwhile, outplacement firm Challenger, Gray & Christmas said Thursday that layoffs had fallen to the worst August since 2009 and hiring had also seen its weakest year since 2005, when the firm began tracking the metric.
Still, even though hiring has slowed significantly, only a few sectors reported actual job losses, according to the ADP data: professional and business services, down 16,000 jobs, manufacturing, down 8,000 jobs, and information services, down 4,000 jobs.
The latest Labor Department data also helped ease concerns about widespread layoffs: 227,000 new claims for unemployment benefits were filed in the week ended Aug. 31, slightly below market expectations of 229,000.
Meanwhile, education and health services added 29,000, construction added 27,000 and other services added 20,000. Financial activities also saw an increase of 18,000 and trade, transport and public works added 14,000.
By size, businesses with fewer than 50 employees reported a decrease of 9,000, while businesses with 50-499 employees reported an increase of 68,000.
Wages continued to rise, but at a slower pace than previous gains: Among those who stayed employed, annual wages rose 4.8%, roughly the same as in July, according to ADP.
The ADP numbers set the stage for the Bureau of Labor Statistics’ more closely watched nonfarm payrolls report on Friday. The two reports can differ widely, but they were almost perfectly aligned for July.
The consensus forecast is for payrolls to rise by 161,000 after gaining 114,000 in July and for the unemployment rate to decline slightly to 4.2%, although recent data could add downside risk to those estimates. Private payrolls increased by just 97,000 in July, according to the BLS.
The market is expecting the worsening employment situation to lead the Federal Reserve to cut interest rates when it meets on September 17-18. The main question is how quickly and aggressively the Fed will act, but current market expectations are for at least a quarter of a percentage point cut at this month’s meeting, followed by a one percentage point cut in the federal funds rate by the end of 2024.
ADP reported a 9,000-job decline in payrolls in its August report after re-benchmarking its data using quarterly employment and wage reports. A similar adjustment by the BLS showed that nonfarm payrolls were overcounted by 818,000 jobs between April 2023 and March 2024. ADP plans to perform a full-year adjustment in February 2025.
