Private Sector Adds 89,000 Jobs in September, Lowest Growth Since Early 2021

Highlights

• In September, private employers created 89,000 new jobs, marking the slowest monthly increase since January 2021, according to ADP's National Employment Report.
• This hiring pace fell short of expectations and contrasts with recent data showing strong job openings, indicating uncertainty in the labor market's strength.
• The number of new jobs was well below the forecasted 153,000, suggesting that Federal Reserve interest rate hikes may be affecting employment growth.
• Small and medium-sized businesses, along with the services industry, contributed most to the job gains.
• This report precedes the government's upcoming nonfarm payrolls data, potentially influencing Federal Reserve policy decisions ahead of the October 31 FOMC meeting.

According to payroll processor ADP, the US private sector added 89,000 jobs in September, a figure significantly lower than analysts anticipated and the smallest increase since January 2021. This data contrasts with the previous day's Job Openings and Labor Turnover Survey (JOLTS), which indicated strong labor demand, presenting a complex picture of the US employment market's resilience.

Private Sector Employment Trends in September

The hiring slowdown was primarily driven by large companies with 500 or more employees, which cut 83,000 jobs. In contrast, small businesses (under 50 employees) and medium-sized firms (50 to 499 employees) added 95,000 and 72,000 jobs, respectively.

Industry-wise, the services sector dominated job creation, contributing 81,000 positions. Leisure and hospitality led with a 92,000 increase, continuing its recovery from pandemic-related setbacks. However, losses were seen in professional and business services as well as trade, transportation, and utilities.

Goods-producing industries saw modest growth with 8,000 new jobs, mainly from a 16,000 gain in construction, offset by a 12,000 loss in manufacturing.

Implications of the Employment Data

The report suggests that Federal Reserve interest rate hikes might be beginning to slow a labor market that has remained robust despite rising borrowing costs, with unemployment near historic lows. This strong labor market has helped the US avoid recession so far.

ADP's findings set the stage for Friday's Bureau of Labor Statistics nonfarm payrolls report, which economists surveyed by Reuters expect to show a gain of about 170,000 jobs—potentially the third-slowest growth this year after June and July.

Federal Reserve officials will closely monitor this data ahead of their late October meeting. A confirmed slowdown in job growth could decrease the likelihood of further rate hikes this year. Market data from CME Group indicates over a 75% chance that interest rates will remain unchanged at the upcoming FOMC gathering.

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